Question
please help with requirements 3 and 4!
Chapter 6 Fall 2017 (- ezto.mheducation.com/hm.tpx Bond P is a premium bond with an 90 percent coupon. Bond selling at a discount. Both bonds make annual payments, have a YTM of 7.0 percent, and have five years to maturity Requirement 1: What is the current yield for bond P? (Do not include the percent sign % Round your answer to 2 decimal places (e.g., 32.16).) Current yield 8.32 Requirement 2: What is the current yield for bond D? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Current yield 5.45 1% Requirement 3: If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P? (Do not include the percent sign (%). Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).) Capital gains yield Requirement 4: If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond D? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 3216).) Capital gains yield References Worksheet Difficulty: Challen
Explanation / Answer
Coupon Payment for Bond P = 90
YTM = 7%
Number of Years to MAturity = 5
FV = 1,000
Using Financial Calculator:
PV = 1,082.00
Price after 1 year:
Price after 1 year = 1,067.74
Capital Gain Yield = (1,067.74 - 1,082.00)/ 1,082.00
Capital Gain Yield = -1.32%
Coupon Payment for Bond D = 50
YTM = 7%
Number of Years to MAturity = 5
FV = 1,000
Using Financial Calculator:
PV = 918
Price after 1 year:
Price after 1 year = 932.26
Capital Gain Yield = (932.26 - 918)/ 918
Capital Gain Yield = 1.55%
