Problem:
A firm is considering the purchase of a $1,000 New Haven Municipal Bond. The city is raising funds for a much needed advertising campaign to promote its East Coast community. The stated coupon rate is 5%, paid quarterly. The bond will mature in 10 years. The YTM for similar bonds is 4%.
Required:
Question 1: What should the market price of the bond be?
Question 2: What is the effective rate?
Question 3: What should the market price be if the coupon were paid annually?
Question 4: What should the market price of the bond be if YTM were 7% annually?
Question 5: What is the Yield to Call if the bond is callable in 7 years at a 6% premium?
Note: Please show the work not just the answer.