A municipal bond is currently priced at $5,105 and is callable in 4 years. If the bond has a coupon rate of 4 percent and is callable at 103 percent of par, what is the yield-to-call?

Question

Quizplus · Accepted Answer

The yield-to-call (YTC) can be calculated by considering the bond's current price, the time until it can be called, the coupon rate, and the call price. The bond is callable at 103% of its par value, which is typically $1,000, making the call price $1,030. With a current price of $5,105 and an annual coupon of 4% (or $40 on a par value of $1,000), the yield-to-call calculation would consider these values to find the rate that equates the present value of the bond's cash flows (coupons and call price) to its current price. The correct answer, 4.12%, reflects the yield that balances these factors under the given conditions.

A Municipal Bond Is Currently Priced at $5,105 and Is