What is the price of the municipal bond given the information below

Finance Jan 26, 2021

What is the price of the municipal bond given the information below. The bond makes semiannual interest payments. (Do not round intermediate calculations, round answer to two decimals, i.e. 32.16)

Coupon Rate:7.8%

YTM:10.5%

Maturity (years):11

Par value: $5,000

Expert Solution

Computation of Price of Municipal Bonds using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Price of Municipal Bonds = ?

Rate = YTM = 10.5%/2 = 5.25%

Nper = Maturity = 11 years*2 = 22 Periods

PMT = Coupon Payment = $5,000*7.8%/2 = $195

FV = Par Value = $5,000

Substituting the values in formula:

=-pv(5.25%,22,195,5000)

PV or Price of Municipal Bonds = $4,131.40

So, Price of Municipal Bonds is $4,131.40

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