A bond has a par value of $1,000, a time to maturity of 15 years, and a coupon r
ID: 2646417 • Letter: A
Question
A bond has a par value of $1,000, a time to maturity of 15 years, and a coupon rate of 7.60% with interest paid annually. If the current market price is $760, what will be the approximate capital gain of this bond over the next year if its yield to maturity remains unchanged? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
A bond has a par value of $1,000, a time to maturity of 15 years, and a coupon rate of 7.60% with interest paid annually. If the current market price is $760, what will be the approximate capital gain of this bond over the next year if its yield to maturity remains unchanged? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Explanation / Answer
A bond has a par value of $1,000, a time to maturity of 15 years, and a coupon rate of 7.60% with interest paid annually. If the current market price is $760, what will be the approximate capital gain of this bond over the next year if its yield to maturity remains unchanged? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
YTM = rate(nper,pmt,pv,fv)
Nper (indicates the period) = 15
PV (indicates the price) = 760
PMT (indicate the annual payment) = 1000*7.6% = 76
FV (indicates the face value) = 1000
Rate (indicates YTM) = ?
YTM = rate( 15,76,-760,1000)
YTM = 10.9235%
Bond Value next year= pv(rate, nper,pmt,fv)
Nper (indicates the period) = 15-1 = 14
PV (indicates the price) = ?
PMT (indicate the annual payment) = 1000*7.6% = 76
FV (indicates the face value) = 1000
Rate (indicates YTM) = 10.9235%
Bond Value next year = pv( 10.9235%,14,76,1000)
Bond Value next year = $ 767.02
Capital gain = Bond Value next year - Current Bond Price
Capital gain = 767.02 - 760
Capital gain = $ 7.02
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