LONG-TERM FINANCING Situation 3. Computing a Buying Price of a Bond Assume that you want to purchase a 6 percent $500,000 City of North Band municipal bond with semiannual interest payments and a remaining life of 10 years today through Goldman Sachs, an investment bank. Today, market interest rates are 4.5 percent. (Note: You will receive an interest each end of period) (1) How much would you have to pay to buy the bond? (In other words, what is an appropriate buying price of the bond?) (2) Show your computing process (Show your completed template) (3) Should you buy the bonds at a discount? Why? Or, should you pay more than face value of the bond? (In other word, do you need to pay a premium?) Why? Situation 3. Computin ropriate Bu Price of A Bond Face value (or par value) of bond Stated interest rate (or Coupon rate) annual Stated interest rate (or Coupon rate) semiannual Market interest rate annual Market interest rate semiannual How many time will you receive coupon rate How much interest will you receive each time Bond Characteristics (Bond Agreement) FV rate nper pmt type PV Future value Interest rate Number of periods Periodic payment per period (Annuity) Type of annunity Present value Therefore, how much would you have to pay to buy the bond