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

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) and yield to call (YTC) are calculated based on the bond's coupon rate, market price, time to maturity or call, and the call premium. The correct YTM and YTC values reflect the bond's return if held to maturity or called at the earliest call date, respectively, considering the given bond's coupon rate, price, and call premium. The calculations involve solving for the interest rate that equates the present value of all future cash flows (coupons and principal) to the bond's current price, which for this bond results in a YTM of 6.24 percent and a YTC of 7.08 percent.

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