A bond having a $1,000 face amount had a price of $750.21 in 2006, and $752.50...

A bond having a $1,000 face amount had a price of $750.21 in 2006, and $752.50 a year later. The coupon rate is 5%.

What was the Current Yield (CY) of this bond?
What was the Capital Gain Yield (CGY)?
What was the Yield to Maturity (YTM)?

Expert Solution

a.	Current Yield	=	Annual coupon	/	Price at the beginning of year
		=	$ 50.00	/	$ 750.21
		=	6.66%

	Working:

	Annual coupon	=	Face Value	*	Coupon rate
		=	$ 1,000.00	*	5%
		=	$ 50.00

b.	Capital Gain Yield	=	(P1-P0)/P0		Where,
		=	(752.50-750.21)/750.21		P0	=	$ 750.21
		=	0.31%		P1	=	$ 752.50

c.	Yield to maturity	=	Current Yield	+	Capital Gain Yield
		=	6.66%	+	0.31%
		=	6.97%

jeff jeffy answered 2 years ago

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