Compute the price of a 3.8 percent coupon bond with 18 years left to maturity and a market interest rate of 7 percent

The price is $68.47

Step-by-step explanation:

Let's assume coupon is redeemable at$100

Number of payments = 36

Each payment is3.8/2=1.9%

Nominal rate is

[1 + (i^2/2) ]^2 = 1 + 0.07

(i^2/2) = 0.0344

i^2=0.0688

Price of coupon is

P = 1.9 [1 + (1+i^2/2) ^-36] / (i^2/2) + 100 (1+0.07) ^-18

P = $68.47