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A municipal bond with a coupon rate of 6.2 percent sells for $4,920 and has seven...

A municipal bond with a coupon rate of 6.2 percent sells for $4,920 and has seven years until maturity. What is the yield to maturity of the bond?

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Answer #1

Par Value = $5,000
Current Price = $4,920

Annual Coupon Rate = 6.20%
Semiannual Coupon Rate = 3.10%
Semiannual Coupon = 3.10% * $5,000
Semiannual Coupon = $155

Time to Maturity = 7 years
Semiannual Period = 14

Let Semiannual YTM be i%

$4,920 = $155 * PVIFA(i%, 14) + $5,000 * PVIF(i%, 14)

Using financial calculator:
N = 14
PV = -4920
PMT = 155
FV = 5000

I = 3.244%

Semiannual YTM = 3.244%

Annual YTM = 2 * 3.244%
Annual YTM = 6.49%

So, yield to maturity of the bond is 6.49%

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