You have just purchased a municipal bond with a $10,000 par value for $9,500. You purchased it immediately after the previous owner received a semiannual interest payment. The bond rate is 6.6% per year payable semiannually. You plan to hold the bond for 6 years, selling the bond immediately after you receive the interest payment. If your desired nominal yield is 2% per year compounded semiannually, what will be your minimum selling price for the bond?
Par Value = $10,000
Current Price = $9,500
Annual Coupon Rate = 6.60%
Semiannual Coupon Rate = 3.30%
Semiannual Coupon = 3.30% * $10,000
Semiannual Coupon = $330
Holding Period = 6 years
Semiannual Period = 12
Desired Return = 2.00%
Semiannual Return = 1.00%
Let Selling Price be $X
$9,500 = $330 * PVIFA(1.00%, 12) + $X * PVIF(1.00%, 12)
$9,500 = $330 * (1 - (1/1.01)^12) / 0.01 + $X * (1/1.01)^12
$9,500 = $330 * 11.255077 + $X * 0.887449
$9,500 = $3,714.17541 + $X * 0.887449
$5,785.82459 = $X * 0.887449
$X = $6,519.61
So, your minimum selling price for the bond is $6,519.61 or $6,520
You have just purchased a municipal bond with a $10,000 par value for $9,500. You purchased...
You have just purchased a municipal bond with a $10,000 par value for $9,500. You purchased it immediately after the previous owner received a semiannual interest payment. The bond rate is 6.6% per year payable semiannually. You plan to hold the bond for 4 years, selling the bond immediately after you receive the interest payment. If your desired nominal yield is 4% per year compounded semiannually, what will be your minimum selling price for the bond?
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I have tried solving it, but got it wrong
I have solved the second one!
You have just purchased a municipal bond with a $10,000 par value for $9,500. You purchased it immediately after the previous owner received a semiannual interest payment. The bond rate is 6.6% per year payable semiannually. You plan to hold the bond for 4 years, selling the bond immediately after you receive the interest payment. If your desired nominal yield is 7% per year compounded...
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