Question

• Comedy Corporation's bonds have a 15-year maturity, a 7% annual coupon paid with semiannual frequency, and a par value of $1,000. The annual interest rate (ra) is 6%, based on semiannual compounding, What is the bond's price? (10 points) 8. a. Find current yield of a 6% coupon bond, currently trading at $1,078. (5 points) b. If the yield to maturity is 4%, find the capital gains yield for the bond above. (5 points)

Answer 1

7). To find the bond's price, we need to put the following values in the financial calculator:

N = 15*2 = 30;

I/Y = 6/2 = 3;

PMT = (7%/2)*1000 = 35;

FV = 1000;

Press CPT, then I/Y, which gives us -1098.00

So, Bond's Price is $1098.00

8-a). Current Yield = Annual coupon payment / Current Bond Price

= [6%*1000] / 1078 = 60 / 1078 = 0.0557, or 5.57%

8-b). Yield = Current Yield + Capital Gains Yield

4% = 5.57% + Capital Gains Yield

Capital Gains Yield = 4% - 5.57% = -1.57%