A 5.5% coupon municipal bond has 16 years left to maturity and has a price quote of 92.55. The bond can be called in 9 years. The call premium is one year of coupon payments. Compute the bond's current yield. Assume interest payments are paid semi-annually and a par value of $5,000.

Question

Quizplus · Accepted Answer

The current yield is calculated as the annual coupon payment divided by the bond's current price. The annual coupon payment is 5.5% of the par value ($5,000), which is $275. The bond's current price is 92.55% of the par value, which is $4,627.50. The current yield is $275 / $4,627.50 = 5.94%.

A 55% Coupon Municipal Bond Has 16 Years Left to Maturity