Question

A 4.30 percent coupon municipal bond has 15 years left to maturity and has a price quote of 97.85. 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 bond’s current yield. (Do not round intermediate calculations. Round your answer to 2 decimal places.).

Answer 1

Bond's Current Yield 4.39%

Step-by-step explanation:

The bond's current yield is calculated as below:

Bond's Current Yield = Annual Coupon Payment/Current Bond Price*100

Substituting values in the above formula, we get,

Bond's Current Yield = (100*4.30%)/97.85*100 = 4.39%