Question

Assume a municipal bond has 18 years until maturity and sells for $5,190. It has a coupon rate of 3.90 percent and it can be called in 8 years. What is the yield to call if the call price is 105 percent of par?

Yield to call = %

What is the single monthly mortality assuming the conditional prepayment rate is 6 percent? (Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.)

Single monthly mortality = %

Answer 1

YTC is calculated using RATE function in Excel :

nper = 8 (number of years until call)

pmt = 195 (annual coupon payment = face value * coupon rate = $5000 * 3.9%. Since the price of the bond is $5190, the face value is taken to be $5000)

pv = -5190 (current bond price. This is entered as a negative number because it is a cash outflow to the buyer of the bond today)

fv = 5250 (call price receivable on call = face value * (105 / 100) = 5000 * (105 / 100) = 5250)

RATE is calculated to be 3.88%.

The YTC is 3.88%