Question

Problem 7-37 Yields of a Bond (LG7-6) A 3.50 percent coupon municipal bond has 13 years left to maturity and has a price quote of 96.85. The bond can be called in four 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. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Current yield D % Compute the yield to maturity. (Do not round intermediate calculations. 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). (Do not round intermediate calculations. Round your answer to 2 decimal places.) Equivalent taxable yield E Compute the yield to call. (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Yield to call 0 %

Answer 1

1 calculation of Bond's, current yield current yield - Face value x couponitate current price face value 3500.0 coupon rate : 3.501 current price - 5000 x 96.851.284842.5 . Current yield 5000 x 3,50% 20.03614 4842.5 . Band carrent yield -0.036142 3.61%

4) calculation of vield to call is By using excel Rate: Rate (nper, Pmd, Puful nper 2482 28 Pmt - 5000x3.5/28 175 Av $ 4842.5 FU ? 5000 +175 $5175 Yield to call - Rate (8, 175,4842.5, S175) 20.021834 - 2.18-8, Annual Yield to call -2.18%, x 2 à 6.36% . Annual yield to call = 4.36% Yield to call = 4.36%

3) calculation of Taxable equivalent yield is Taxable equivalent yield = Yield tomaturity lamariginal tare 23.81% (+-35%) = 0.038120.0586/ 0.65 . Tauable equivalent yield - 5.864.

2) Calculation of field to maturity is By using excel Rate - Rate (nper, Pmt - Pu, fu) nper: 13x2 =26 Pmt - 5000X 3.50%= $87.5 Pu = 5000 x 96.851. - $ 4842.5 EU = $5000 .Rate = (26,8715, -4842.5, 5000) x2 0.019047 x 2:0.038094 .: Rate : 3.81% Yield to maturity = 3.81%