What is the annual capital gains yield expected over the next year for a 12 year...

What is the annual capital gains yield expected over the next year for a 12 year bond with 6.9% coupon rate paying the coupons every six months and selling at $1,045

Solutions

Expert Solution

Calculation of yield to maturity:

Face Value = $1,000
Current Price = $1,045

Annual Coupon Rate = 6.90%
Semiannual Coupon Rate = 3.45%
Semiannual Coupon = 3.45% * $1,000
Semiannual Coupon = $34.50

Time to Maturity = 12 years
Semiannual Period to Maturity = 24

Let Semiannual YTM be i%

$1,045 = $34.50 * PVIFA(i%, 24) + $1,000 * PVIF(i%, 24)

Using financial calculator:
N = 24
PV = -1045
PMT = 34.50
FV = 1000

I = 3.179%

Semiannual YTM = 3.179%

Calculation of price after 1 year:

Face Value = $1,000
Semiannual Coupon = $34.50
Semiannual YTM = 3.179%

Time to Maturity = 11 years
Semiannual Period to Maturity = 22

Price in 1 year = $34.50 * PVIFA(3.179%, 22) + $1,000 * PVIF(3.179%, 22)
Price in 1 year = $34.50 * (1 - (1/1.03179)^22) / 0.03179 + $1,000 / 1.03179^22
Price in 1 year = $1,042.42

Calculation of capital gain yield:

Capital Gain Yield = (Price in 1 year - Current Price) / Current Price
Capital Gain Yield = ($1,042.42 - $1,045) / $1,045
Capital Gain Yield = -0.0025 or -0.25%

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

What is the annual capital gains yield expected over the next year for a 15 year...

What is the annual capital gains yield expected over the next year for a 15 year bond with 9% coupon rate paying the coupons every six months and selling at $1,082 (enter answer as a percentage)?

1. Over the next year, what is the current yield, capital gains yield, and total return...

1. Over the next year, what is the current yield, capital gains yield, and total return (or total yield) of a 5 year bond with a 4% YTM and a coupon rate of 5%? Assume the YTM over the next year remains the same. 2. Same question as above, except the YTM at the end of the year has risen to 4.5%. (

What are the total return, expected dividend yield, and capital gains yield for the first year?

ABC Company just paid a dividend (Do) of $1.10. Due to a new product being introduced to the market, ABC expects to achieve a supernormal annual growth rate of 15% for the next four years. After that, growth is expected to return to the long-run constant rate of 8%. Investors require a 12% return on this stock.Question 1 : What are the total return, expected dividend yield, and capital gains yield for the first year?Question 2 : What are the...

4. A) Explain the total return, the current yield, and the capital gains yield for a...

4. A) Explain the total return, the current yield, and the capital gains yield for a bond and how each is determined. B) What is price risk for a bond? What is reinvestment risk for a bond? What bonds would have the most price risk? What bonds would have the least price risk? C) How is default risk measured for a bond? What lets you know a bond is investment grade? What lets you know that a bond is speculative...

The capital gains yield (yield from growth) plus the dividend yield (yield from income) on a...

The capital gains yield (yield from growth) plus the dividend yield (yield from income) on a security is called the: A. total return. B. geometric return C. average period return. D. current yield. E. variance of returns .

Sales are expected to grow by 12% next year. Assuming no change in operations from this year to next year, what are the projected total operating assets?

Projected Operating AssetsBerman & Jaccor Corporation's current sales and partial balance sheet are shown below.This yearSales$1,000Balance Sheet: AssetsCash$100Short-term investments$75Accounts receivable$300Inventories$150 Total current assets$625Net fixed assets$400 Total assets$1,025Sales are expected to grow by 12% next year. Assuming no change in operations from this year to next year, what are the projected total operating assets? Do not round intermediate calculations. Round your answer to the nearest dollar.$

Auto Transmissions is expected to pay annual dividends of $1.90 and $2.10 over the next two...

Auto Transmissions is expected to pay annual dividends of $1.90 and $2.10 over the next two years, respectively. After that, the company expects to pay a constant dividend of $2.30 per share. What is the value of this stock at a required return of 15%? Select one: a. $13.67 b. $15.60 c. $14.21 d. $15.08 e. $14.83

Based on current dividend yields and expected capital gains, the expected return on portfolios A and...

Based on current dividend yields and expected capital gains, the expected return on portfolios A and B are 11% and 14% respectively. The beta of A is 0.8 while that of B is 1.5. The rate of exchange fund bill is currently 6%, while the expected return of the Hang Seng Index is 12%. The standard deviation of portfolio A is 10%, while that of B is 31%, and that of the index is 20%. a. If you currently hold...

If an investor wants to receive 500000 euros and the expected yield on the 12-year bond...

If an investor wants to receive 500000 euros and the expected yield on the 12-year bond is 7.2% then what would be the amount of an initial investment? State the answer as a number with 2 decimals without any currency sign.

Lohn Corporation is expected to pay the following dividends over the next four years: $12, $9,...

Lohn Corporation is expected to pay the following dividends over the next four years: $12, $9, $8, and $3.50. Afterwards, the company pledges to maintain a constant 7 percent growth rate in dividends forever. If the required return on the stock is 14 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current share price $

Subjects