Answer:
Question 8)
Given
Face Value of Bond F=$1000
Bond Price P=$900
Coupon Rate C=10%
N=5 years
Let r be the yield to maturity
So P=C*F(1-(1+r)^-N)/r + F/(1+r)^N
900=10%*1000*(1-(1+r)^-5)/r +1000/(1+r)^5
Solving for r we get r=12.83%
Question 9)
Bond Price after one year when years to maturity will be 4 years
P1=C*F(1-(1+r)^-N)/r + F/(1+r)^N
P1=10%*1000*(1-(1+12.83%)^-4)/r +1000/(1+12.83%)^4
P1=915.52
Capital gain Yield =(P1-P)/P=(915.52-900)/900=1.72%
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