Question

A 07.10% annual coupon, 8-year bond has a yield to maturity of 08.40%. Assuming the par value is $1,000 and the YTM is expected not to change over the next year:    a) what should the price of the bond be today?

b) What is bond price expected to be in one year?

c) What is the expected Capital Gains Yield for this bond?

d) What is the expected Current Yield for this bond?

Answer 1

a)

2 1,000 7.1% 11 8 9 71 10 A A Par value (FV) B Coupon rate C Number of compounding periods per year D = AxB/C Interest per period (PMT) E Number of years to maturity Number of compounding periods till F = CxE maturity (NPER) G| Market rate of return/Required rate of Market rate of return/Required rate of G/c return per period (RATE) 11 8.4% 13 14 15 8.4% PV(RATE,NPER,PMT,FV)*-1|| Bond price today Bond price today $ 926.41 =PV(8.4%,8,71,1000)*-1

$ 1,000 7.1% 1 9 10 А B A Par value (FV) B Coupon rate C Number of compounding periods per year D = AxB/C Interest per period (PMT) E Number of years to maturity Number of compounding periods till maturity F = CxE (NPER) G|Market rate of return/Required rate of return Market rate of return/Required rate of return G/C per period (RATE) Bond price in 1 year 11 8.4% 13 8.4% PV(RATE,NPER,PMT,FV)*-1 16 b) Bond price in 1 year $ 933.23 =PV(8.4%,7,71,1000)*-1 c) Capital gains yield 0.74% =1933.23-926.41)/926.41 22 d) Current yield 7.66% =71/926.41

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