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A 10-year, $1,000 par value bond has a 6.25% coupon rate with interest paid semiannually. The...

A 10-year, $1,000 par value bond has a 6.25% coupon rate with interest paid semiannually. The bond currently sells for $875. What is the capital gains yield on these bonds? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.

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Answer #1
                  K = Nx2
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =10x2
875 =∑ [(6.25*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^10x2
                   k=1
YTM% = 8.1

Capitals gains yield = YTM-coupon rate = 8.1-6.25 = 1.85%

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