A 6.85 percent coupon bond with 18 years left to maturity is offered for sale at

Question

A 6.85 percent coupon bond with 18 years left to maturity is offered for sale at $1,025.30. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

(Round your final answer to 2 decimal places)

2.

     What's the taxable equivalent yield on a municipal bond with a yield to maturity of 4.6 percent for an investor in the 33 percent marginal tax bracket?
  

(Round your answer to 2 decimal places.)

3. A 6.05 percent coupon bond with fifteen years left to maturity is priced to offer a 7.1 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollars?

(Do not round intermediate calculations and round your final answer to 2 decimal places.)

4. A 6.60 percent coupon bond with 26 years left to maturity can be called in seven years. The call premium is one year of coupon payments. It is offered for sale at $1,115.95. What is the yield to call of the bond? (Assume interest payments are semiannual.)

     (Round your answer to 2 decimal places.)
    

5. A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 6.10 percent yield to maturity and a similar-risk corporate bond that offers a 7.25 percent yield.

     Determine the equivalent taxable yield. (Round your answer to 2 decimal places)

6.

A 4.05 percent coupon municipal bond has 14 years left to maturity and has a price quote of 108.00. The bond can be called in eight years. The call premium is one year of coupon payments. (Assume interest payments are semiannual and a par value of $5,000.)

Compute the bond

(Round your final answer to 2 decimal places)

Explanation / Answer

A 6.85 percent coupon bond with 18 years left to maturity is offered for sale at $1,025.30. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

Yield to maturity = rate(nper,pmt,pv,fv)*2

Yield to maturity = rate(18*2,34.25,-1025.30,1000)*2

Yield to maturity = 6.61%

2.     What's the taxable equivalent yield on a municipal bond with a yield to maturity of 4.6 percent for an investor in the 33 percent marginal tax bracket?  

Taxable equivalent yield = yield to maturity*(1-tax rate)

Taxable equivalent yield = 4.6*(1-33%)

Taxable equivalent yield = 3.08 %

3. A 6.05 percent coupon bond with fifteen years left to maturity is priced to offer a 7.1 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollars?

Present Price = pv(rate,nper,pmt,fv)

Present Price = pv(7.1%,15,60.50,1000)

Present Price = 904.97

Price after 1 year = pv(rate,nper,pmt,fv)

Price after 1 year = pv(7%,14,60.50,1000)

Price after 1 year = 916.92

Change in price the bond = Price after 1 year - Present Price

Change in price the bond = 916.92 - 904.97

Change in price the bond = 11.95

Note:

Percentage Change in price the bond = 11.95/904.97

Percentage Change in price the bond = 1.32%

4. A 6.60 percent coupon bond with 26 years left to maturity can be called in seven years. The call premium is one year of coupon payments. It is offered for sale at $1,115.95. What is the yield to call of the bond? (Assume interest payments are semiannual.)

   Yield to call of the bond = rate(nper,pmt,pv,fv)*2

   Yield to call of the bond = rate( 14, 33,-1115.95,1066)*2

   Yield to call of the bond = 5.38%
    

5. A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 6.10 percent yield to maturity and a similar-risk corporate bond that offers a 7.25 percent yield.

     Determine the equivalent taxable yield. (Round your answer to 2 decimal places)

Equivalent taxable yield of municipal bond = 6.10*(1-35%)

Equivalent taxable yield of municipal bond = 3.97%

Equivalent taxable yield of corporate bond = 7.25*(1-35%)

Equivalent taxable yield of corporate bond = 4.71%

Which bond will give the client more profit after taxes?

Corporate bond

6. A 4.05 percent coupon municipal bond has 14 years left to maturity and has a price quote of 108.00. The bond can be called in eight years. The call premium is one year of coupon payments. (Assume interest payments are semiannual and a par value of $5,000.)

Compute the bond

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