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Subject:FinancePrice:2.86 Bought3
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 yield to call. ( do not round intermediate calculations. Round your answer to 2 decimal places.)
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The yield to call is 2.58%
Step-by-step explanation
First we need to calculate the call price of the bond.
Call price = Par value + Call premium + Coupon payment per year = $5,000 + ( $5,000 x 3.50% ) = $5000 + $175 = $5,175
Now use following formula to calculate the yield to call
Please see the attached file for the complete solution
