FIN 350 Managerial Finance Assignment #4

FIN 350: Managerial Finance

Assignment #4 -

Note: On all problems, you may assume 1,000 par value for the bonds.

1. A % coupon municipal bond has 22 years left to maturity and can be called in 7 years. Its current price is quoted at . 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...