A municipal bond has 6 years until maturity and sells for $5,603.63. The coupon
ID: 2647777 • Letter: A
Question
A municipal bond has 6 years until maturity and sells for $5,603.63. The coupon rate on the bond is 6.82 percent and the bond is callable in 3 years. What is the yield to call if the call price is 110 percent of par?(Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Yield to call
A municipal bond has 6 years until maturity and sells for $5,603.63. The coupon rate on the bond is 6.82 percent and the bond is callable in 3 years. What is the yield to call if the call price is 110 percent of par?(Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Explanation / Answer
Time in years= n 6 Market Price= P 5603.63 Coupon= I 6.82% Let Face Value be X= F Thus, Coupon= 6.82%*X 0.0682X Yield to maturity can be computed as follows: Yield= {I + [(F-P)/n]}/ [(F+P)/2] Time to Call in years= n 3 Hence, Yield to call can be computed as follows: Yield= {I + [(F-P)/n]}/ [(F+P)/2] (where n is time to call) (Some parameters are missing as firstly Face Value needs to computed That can be done, if Yield to maturity is given)