Question

Again, based on the security described in problem 18 above, calculate the capital gain or loss yield. Enter answer as a decimal (not a percent) with 4 decimal places (.XXXX). If answer is negative, use a minus sign (not parentheses).  

**Problem 18: The current market price of a 7 year corporate bond with a 5% coupon if market interest rates are 6% would be: (enter answer as a decimal with two decimal places - XXXX.XX)

Answer 1

Bond Price = PV of CFs from it.

Year	CF	PVF @6%	Disc CF
1	$      50.00	0.9434	$   47.17
2	$      50.00	0.8900	$   44.50
3	$      50.00	0.8396	$   41.98
4	$      50.00	0.7921	$   39.60
5	$      50.00	0.7473	$   37.36
6	$      50.00	0.7050	$   35.25
6	$ 1,000.00	0.7050	$ 704.96
Bond Price	$ 950.83

Given Yield is 6%

Current Yield = COupon Amount / Price

= $ 50 / 950.83

= 0.0526 i.e 5.26%

CG Yield = Total Yield - Current Yield

= 0.06 - 0.0526

= 0.0074

i.e 0.74%