Question

A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8.70% with interest paid annually. If the current market price is $870, what will be the approximate capital gain of this bond over the next year if its yield to maturity remains unchanged? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Capital gain

$

Answer 1

	Nper	Time to maturity in years	10
	Pmt	Annual coupon payment=1000*8.7%	$87.00
	Pv	Current market price	$870
	Fv	Payment at maturity	$1,000
	RATE	Yield to maturity	10.90%	(Using RATE function of excel with Nper=10, Pmt=87,Pv=-870, Fv=1000)
		MARKET PRICE AFTER ONE YEAR
		Market Price =Present Value of future cash flows discounted at yield Rate
	Nper	Time to maturity in years	9
	Pmt	Annual coupon payment=1000*8.7%	$87.00
	Rate	Yield to maturity	10.90%
	Fv	Payment at maturity	$1,000
	Pv	Market Price after one year	$877.81	(Using Pv function of excel withRate=10.90%, Nper=9, Pmt=-87, Fv=-1000)
		Capital Gain	$7.81	(877.81-870)