A municipal bond with a yield-to-maturity of 4.08 percent has a coupon rate of 4.6 percent. If the bond has 9 years to maturity, what is the price of the bond? The face value is assumed to be $5,000.

Question

Quizplus · Accepted Answer

We can use the bond pricing formula to calculate the price of the bond:

Price = (Coupon payment / (1 + YTM)^1) + (Coupon payment / (1 + YTM)^2) + ... + (Coupon payment + Face value / (1 + YTM)^n)

Where:
Coupon payment = Face value x Coupon rate
YTM = Yield-to-maturity
n = Number of years to maturity

Plugging in the given values, we get:

Coupon payment = $5,000 x 4.6% = $230 per year
YTM = 4.08%
n = 9

Price = ($230 / (1 + 0.0408)^1) + ($230 / (1 + 0.0408)^2) + ... + ($230 + $5,000 / (1 + 0.0408)^9)
Price = $5,194.21

Therefore, the best choice is B.

A Municipal Bond with a Yield-To-Maturity of 4