A 4.00 percent coupon municipal bond has 12 years left to maturity and has a pri

Question

A 4.00 percent coupon municipal bond has 12 years left to maturity and has a price quote of 106.80. 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.)

Current yield

3.75%

Compute the yield to maturity. (Round your answer to 2 decimal places.)

Yield to maturity=__%

Compute the taxable equivalent yield (for an investor in the 35 percent marginal tax bracket). (Round your answer to 2 decimal places.)

Equivalent taxable yield=___%

Compute the yield to call. (Round your answer to 2 decimal places.)

Yield to call+___%

Explanation / Answer

Current Yield: Income/Price = 2.70/95.55 = 0.02826 = 2.83%

YTM: 3.18%, based on using the financial bond calculator below. The following data was used: Par value: $5,000, Semi-annual coupon payment of $67.50, Price: -$4,777.50 (enter as a negative number as this is cash outflow) and number of periods: 22.

http://www.zenwealth.com/BusinessFinance...

Tax-equivalent YTM: 3.18/0.65 = 4.89%

Yield to Call: 4.53%, based on using the financial bond calculator above. The following data was used: Par value: $5,130, Semi-annual coupon payment of $67.50, Price: -$4,777.50 (enter as a negative number as this is cash outflow) and number of periods: 8.

Tax-equivalent Yield to Call: 4.53/0.65 = 7.52%

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