Consider a $1,000 par value investment grade corporate bond which currently has

Question

Consider a $1,000 par value investment grade corporate bond which currently has a Yield to Maturity, YTM, of 5.475%. The bond has an annual coupon rate of 7.625% and is currently selling for 115.247%

Annual interest Payment=$76.25

PV=1152.47

Current yield=6.62%

If the YTM is 5.475%, and given the current yield that you calculated above, what is the Capital Gain or (LOSS)? Show the work below by setting up the calculation labeling the current yield and its value, the capital gain or (loss) and its value, and the YTM of 5.475%

Explanation / Answer

YTM= (ending price + annual interest- beginning price)/ beginning prie

0.05475 = (ending price + 76.25 -1152.47)/ 1152.47

63.10 +1152.47-76.25 = ending price

Ending price = 1139.32

Capital gains yield (loss) = (ending price – begin price)/ begin price

                                                = (1139.32 – 1152.47)/1152.47

                                                = -1.14%

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