QUESTIONS A 16 year bond with a face value of $1,000 Greys for the band's coupons...

Question

Question

Answer 1

Answer #1

Face Value = $1,000

Selling price = $938.55

Yield to Maturity = 10%

Current Yield = 9.59%

Current Yield = Annual Coupon payment / Selling price

9.59% = Annual Coupon payment / $938.55

Annual Coupon payment = $938.55 * 0.0959

Annual Coupon payment = $90.00

Price at end of year 1 = [$90 * PVAF(10%,9years)] + [$1,000 / (1.10)⁹]

Price at end of year 1 = [$90 * 5.759] + [$1,000 * 0.4240976]

Price at end of year 1 = $518.312 + $424.10

Price at end of year 1 = $942.41

Capital gain yield = [(Price at end of year 1 - Price at end of year 0) *100] / Price at end of year 0

Capital gain yield = 0.41%.

Answer 2

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