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.)

Compute the bond’s current yield percentage. (Round your answer to 2 decimal places.)

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

Compute the taxable equivalent yield percentage (for an investor in the 35 percent marginal tax bracket).

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

Explanation / Answer

a)

Bond current yield:

= $200÷($5,000×106.8%)

= 3.75%

b)

c)

Taxable equivalent yield:

= 3.31%÷(1-0.35)

= 5.09%

d)

Face value (FV) $                                    5,000.00 Coupon rate 4.00% Number of compounding periods per year 2 Interest per period (PMT)                                            100.00 Bond price (PV) $                                  (5,340.00) Number of years to maturity 12 Number of compounding periods till maturity (NPER) 24 Bond Yield to maturity RATE(NPER,PMT,PV,FV) Bond Yield to maturity 3.31% RATE(24,100,-5340,5000)*2

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