You have just purchased a municipal bond with a $10,000 par value for $9,500. Yo

Question

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 7 years, selling the bond immediately after you receive the interest payment. If your desired nominal yield is 6.5% per year compounded semiannually, what will be your minimum selling price for the bond?

$______________

Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is

Explanation / Answer

PV = A * (1-(1+i)^-n)/i + FV / (1 + i)^n

A = 10000 * 6.6% / 2 = 330

i = 6.5% / 2 = 3.25%

n = 7 * 2 = 14

9500 = 330 * (1-(1+.0325)^-14)/.0325 + FV / (1 + .0325)^14

FV = 9130.70

Minimum selling price for the bond = 9131

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