Bond Returns: A 15-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond...

Bond Returns:

A 15-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. After one year, assuming the the yield to maturity (discount rate) remains the same as previous, calculate the following returns between the two years:

1) Current yield

2) Capital gains yield

3) Total returns

Hint:

solve the rate (yield to maturity) for the 25-year bond.
with the same yield to maturity, solve the price for the bond with shorter maturity.
Show all your work for full credit.

year	0	1

rate	??	10%
nper	15	14
pmt	85	85
pv	-925	??
fv	1000	1000
type	0	0


excel	rate	pv
calculation	??	??

price	??	??	<-- from calculation
coupon		??	<-- from bond specifications
current yield		??	<-- coupon / last price
capital gains yield		??	<-- % change in price
Total return		??	<-- current yield + capital yield

Solutions

Expert Solution

jeff jeffy answered 8 months ago

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