Question
The Los Angeles Department of Water and Power has issued an interesting bond which carries a low interest rate, but, when bought at par, is
- The Los Angeles Department of Water and Power has issued an interesting bond which carries a low interest rate, but, when bought at par, is retired with successively higher call premia, depending on year of call. Therefore, the $275 million issue is subject to the following refunding schedule, with call price quoted as % of par (bond call date occurring on July 1 of the year, except 2026 call which occurs on January 1 of 2026):
|
| 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 |
| Coupon | 0.86% | 0.98% | 1.10% | 1.22% | 1.33% | 1.47% | 1.62% |
| Int Rate | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% |
| Call Price | 116.708 | 120.012 | 123.007 | 125.689 | 128.146 | 130.014 | 129.985 |
What is tax-equivalent yield of these bonds, assuming a marginal tax rate of 31.65%?
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Emerging Market Finance New Challenges And Opportunities
Authors: Bang Nam Jeon, Ji Wu
1st Edition
1839820594, 978-1839820595
