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A bond has a par value of $1,000, a time to maturity of 10 years, and...

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 $

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Expert Solution

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)

jeff jeffy answered 1 week ago
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