A bond offers a coupon rate of 7%, paid annually, and has a maturity of 10...

A bond offers a coupon rate of 7%, paid annually, and has a maturity of 10 years. The current market yield is 9%. If market conditions remain unchanged, what should be the Capital Gains Yield of the bond?

Enter your answer as a percentage, without the percentage sign ('%'), and rounded to 2 decimals. Use the minus sign ('-') if the yield is negative.

Solutions

Expert Solution

Information provided:

Par value= future value= $1,000

Coupon rate= 7%

Coupon payment= 0.07*1,000= $70

Time= 10 years

Current market yield= 9%

Current yield is calculated using the below formula:

Current Yield= Annual interest/Current price

0.09= $70/ Current price

Current price= $70/ 0.09

= $777.7778 $777.78.

Capital gains yield is calculated using the below formula:

Capital Gains Yield= Current price-original price/Original price*100

= $777.78 - $1,000/ $1,000*100

= -0.2222*100

= -22.22.

In case of any query, kindly comment on the solution

jeff jeffy answered 2 months ago

Next > < Previous

Related Solutions

5. A bond offers a coupon rate of 7%, paid annually, and has a maturity of...

5. A bond offers a coupon rate of 7%, paid annually, and has a maturity of 18 years. If the current market yield is 9% (discount rate), what should be the price of this bond? 6. A bond offers a coupon rate of 10%, paid semiannually, and has a maturity of 6 years. If the current market yield is 6%, what should be the price of this bond?

A) A bond offers a coupon rate of 12%, paid annually, and has a maturity of...

A) A bond offers a coupon rate of 12%, paid annually, and has a maturity of 16 years. The current market yield is 14%. Face value is $1,000. If market conditions remain unchanged, what should be the Capital Gains Yield of the bond? B) You own a bond with the following features: face value of $1000, coupon rate of 5% (semiannual compounding), and 15 years to maturity. The bond has a current price of $1,115. The bond is callable after...

A) A bond offers a coupon rate of 9%, paid annually, and has a maturity of...

A) A bond offers a coupon rate of 9%, paid annually, and has a maturity of 14 years. The current market yield is 10%. Face value is $1,000. If market conditions remain unchanged, what should the price of the bond be in 1 year? Assume the market yield remains unchanged. B) A bond currently trades at a price of $852.72 in the market. The bond offers a coupon rate of 7%, paid annually, and has a maturity of 15 years....

A bond offers a coupon rate of 3%, paid annually, and has a maturity of 19...

A bond offers a coupon rate of 3%, paid annually, and has a maturity of 19 years. Face value is $1,000. If the current market yield is 11% (discount rate), what should be the price of this bond? Enter your answer in dollars, without the dollar sign ('$'), and rounded to the nearest cent (2 decimals).

A bond offers a coupon rate of 6%, paid annually, and has a maturity of 9...

A bond offers a coupon rate of 6%, paid annually, and has a maturity of 9 years. The current market yield is 14%. If market conditions remain unchanged, what should be the Capital Gains Yield of the bond?

A bond offers a coupon rate of 6%, paid annually, and has a maturity of 6...

A bond offers a coupon rate of 6%, paid annually, and has a maturity of 6 years. If the current market yield is 7% (discount rate), what should be the price of this bond? Enter your answer in dollars, without the dollar sign ('$'), and rounded to the nearest cent (2 decimals).

Question