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1. A 4.75% coupon municipal bond has 22 years left to maturity and can be called in 7 years. Its current price is quoted at 104.45. The bond pays semi-annual coupons. The call premium is one year of coupon payments. Compute the bond’s current yield, yield-to-maturity, yield-to-call, and taxable equivalent yield, assuming a tax rate of 28%. Explain why the current yield is not a complete measure of the true rate of return you would earn on a bond. (8 pts.)2. If you buy a 6.5% coupon (assume semi-annual payments), 25-year bond today when current market rates are 5.4%, and you own this bond for 5 years and sell it when current market rates are 7%, what will be the gain or loss in the price of this bond over the five-year period in both dollar and percentage terms? (6 pts.)3. Consider two bonds, both with 8% coupon rates (assume annual coupon payments) one with 10 years to maturity and the other with 20 years to maturity. Assume that current market rates of interest are 8%. Shoe the difference in the change of the price of the two bonds if interest rates immediately decrease to 7%. (6 pts.)
You are considering the following two mutually exclusive projects. What is the crossover point?
Knapp Bros, LLC is planning to issue new 20-year bonds. The current plan is to make the bonds non-callable, but this may be changed. If the bonds are made callable after 7 years at a 7% call premium, how would this affect their required rate of re..
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