You have just purchased ten municipal bonds, each with a $1,000 par value, for $9,500. You purchased them immediately after the previous owner received semiannual coupon payments. The bond rate is 6.6% per year payable semiannually. You plan to hold the bonds for 5 years, selling them immediately after you receive the coupon payment. If your desired nominal yield is 12% per year compounded semiannually, what will be your minimum selling price for the bonds

$12,663.26

Explanation:

The computation of the minimum selling price is shown below

Semi-annual  = 12% ÷ 2 = 6%

Semi-annual compounding periods = 5 × 2 = 10

Semi-annual coupon (for 10 bonds) = $10,000 × 6.6% x (1 ÷ 2) = $330

as we know that

We assume the selling price be S

Present worth (PW) of the bond= PW of future cash flows

$9,500 = $330 × P/A(6%, 10) + S × P/F(6%, 10)

$9,500 = $330 × 7.3601 + S × 0.5584

$9,500 = $2,428.83 + S × 0.5584

S × 0.5584 = $7,071.17

= $7,071.17 ÷ 0.5584

= $12,663.26

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