Question

Problem 7-37 Yields of a Bond (LG7-6) A 4.10 percent coupon municipal bond has 13 years left to maturity and has a price quote of 96.45. 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 bond's current yield. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Current yield % Compute the yield to maturity. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Yield to maturity

Answer 1

1. Current Yield = Interest Amount / Current Market Price
   so, Current yield is 4.25 % (i.e. 4.10/ 96.45)
   
2. YTM = 2.23 %
   
3. Equivalent taxable Yield = Interest Amount after tax/ Current Market Price
   so, Current yield is 2.76 % (i.e. 2.67/ 96.45)
   
4. Yield to call would be 6.03 %