A 10 year 7% municipal bond, quoted on a 5.00 basis, is priced at 104. A 10 year 6% municipal bond, quoted on a 5.00 basis, is priced at 101. What is the price of a 10 year, 6.40% municipal bond, quoted on a 5.00 basis?

A. 101.25

B. 101.80

C. 102.05

D. 102.20

D. 102.2

Explanation:

Using a simultaneous equation

Since the year is constant

We will use the the basis and municipal bond as our variables

So equation 1 = 7x+5y=104

Eqn ii = 6x + 5y = 101

Using eliminating method

X=3

Substitute for x in equation 1 to get the value of y

7 (3) + 5y=104

5y=104-21

Y=16.6

To get the price for the percent of 6.40 at 5% basis substitute for the value of X and Y respectively in the both equation

6.4x+5y=?

6.4 (3) + 5 (16.6) =

19.2+83=102.2