Homework Answers
Answer a.
Par Value = $1,000
Annual Coupon Rate = 10.00%
Semiannual Coupon Rate = 5.00%
Semiannual Coupon = 5.00% * $1,000
Semiannual Coupon = $50
Time to Maturity = 20 years
Semiannual Period = 40
Annual YTM = 12.00%
Semiannual YTM = 6.00%
Current Price = $50 * PVIFA(6.00%, 40) + $1,000 * PVIF(6.00%,
40)
Current Price = $50 * (1 - (1/1.06)^40) / 0.06 + $1,000 *
(1/1.06)^40
Current Price = $50 * 15.046297 + $1,000 * 0.097222
Current Price = $849.54
Answer b.
Capital Gain (Loss) Percentage = (Current Price - Par Value) /
Par Value
Capital Gain (Loss) Percentage = ($849.54 - $1,000.00) /
$1,000.00
Capital Gain (Loss) Percentage = -$150.46 / $1,000.00
Capital Gain (Loss) Percentage = -0.1505 or -15.05%
Answer c.
Capital Gain (Loss) Percentage = (Par Value - Current Price) /
Current Price
Capital Gain (Loss) Percentage = ($1,000.00 - $849.54) /
$849.54
Capital Gain (Loss) Percentage = $150.46 / $849.54
Capital Gain (Loss) Percentage = 0.1771 or 17.71%
Answer d.
The percentage gain is larger than the percentage loss because the investment is smaller.
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