Question

Suppose that you purchased a A rated $5,000 annual coupon bond with an 5.3% coupon rate and a 11-year maturity at par value. The current rate on 11-year US treasuries is 3%.  Two years later, you sell the bond, and for a yield of 4.322%, what was your capital gain (+) or capital loss (-) in dollars and cents? (make your answer positive for a gain, negative for a loss)

Answer 1

Face/Par Value of bond = $5000

Annual Coupon Bond = $5000*5.3%

= $265

No of years to maturity from now (n) = 11 years - 2 years = 9

Current Yield (YTM) = 4.322%

Calculating the Selling price of Bond 2 years later:-

Price = $1941.768 + $3416.54

Selling Price = $5,358.31

You purchased the Bonds at Par Value which is $5000

- Capital Gain = Selling Price - Purchase Price

Capital Gain = $5,358.31 - $5000

Capital Gain = $358.31