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A bond has years to​ maturity, a coupon rate of 6.7% ​, and a face value...

A bond has years to​ maturity, a coupon rate of 6.7% ​, and a face value of $1000. The yield to maturity is 14%. Assume annual compounding. What is the current price of the​ bond, the coupon​ yield, and the capital gain​ yield? Also, what will be the price of the bond when it has 4 years to maturity​ (one year from​ today) and what is the percentage​ increase/decrease in price during the​ year? (Note: use negative signs to indicate decreases and assume that the yield to maturity will remain constant over the​ one-year period.)

Solutions

Expert Solution

Calculating Price of Bond,

Using TVM Calculation,

PV = [FV = 1,000, PMT = 67, N = 5, I = 0.14]

PV = $749.39

Current Yield = 67/749.39 = 8.94%

Capital Gain Yield = 0.14 - 0.0894 = 5.06%

Calculating Price in 1 year,

Using TVM Calculation,

PV = [FV = 1,000, PMT = 67, N = 4, I = 0.14]

PV = $787.30

jeff jeffy answered 2 years ago
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