Final answer:
The current yield of the bond with a 3.00% coupon rate, 14 years to maturity, and quoted at 97.45 is 3.08%.
Step-by-step explanation:
To calculate the current yield of a municipal bond, we must first understand that the current yield is essentially the annual interest payment divided by the bond's current price. The bond's coupon rate is 3.00%, which means it pays 3.00% of its $5,000 par value in interest every year, resulting in an annual interest payment of $150 (0.03 * $5,000). Since the bond is quoted at a price of 97.45, this refers to 97.45% of its par value, meaning the purchase price is $4,872.50 (0.9745 * $5,000). The current yield is therefore $150 divided by $4,872.50, which gives us a current yield of approximately 3.08%. This is calculated as follows:
Current Yield = Annual Interest Payment / Current Bond Price
Current Yield = $150 / $4,872.50
Current Yield = 0.0308 or 3.08% (rounded to two decimal places)
The yield to maturity (YTM) is a more complex calculation that takes into account not only the interest payments but also the capital gains or losses incurred upon maturation or call of the bond.
This calculation requires a time value of money calculation, typically done using a financial calculator or software, considering the semiannual interest payments, the years until maturity or call, the price of the bond, and its par value. Due to the complexity and the need for a financial calculator or software, the yield to maturity calculation cannot be provided in this format.