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Dewey Cheetham & Howe Accounting firm is considering the purchase of a $1,000 New Haven Municipal Bond. The stated coupon rate is 5%, paid
Dewey Cheetham & Howe Accounting firm is considering the purchase of a $1,000 New Haven Municipal Bond. The stated coupon rate is 5%, paid semi-annually (twice a year). The bond will mature in 20 years. The YTM for similar bonds is 2.5%. a) How much should the market price of the bond be? b) How much is the effective rate of YTM? c) For the current year, how much is the current yield? d) For the current year, how much is the capital gains yield? e) What should the market price be if the coupon were paid annually? f) If the current market price of the bond is $1080, find the YTM with the original semi-annual coupon. g) What is the Yield to Call if the bond is callable in 7 years at a 15% premium with the original price and semi-annual coupon?
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Step: 1
a To calculate the market price of the bond we need to use the formula for the present value of a bond PV C 1 r2t C 1 r2t1 C 1 r22n F 1 r22n where PV is the present value of the bond C is the semiannu...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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