Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. a bond offers a coupon rate of 4%, paid annually,

A bond offers a coupon rate of 4%, paid annually, and has a maturity of 5...

Free

80.2K

Verified Solution

Question

Finance

A bond offers a coupon rate of 4%, paid annually, and has amaturity of 5 years. The current market yield is 9%. If marketconditions remain unchanged, what should be the Capital Gains Yieldof the bond?

Answer & Explanation Solved by verified expert
4.2 Ratings (549 Votes)

Step-1:Calculation of current price of bond
Current price = =-pv(rate,nper,pmt,fv)
= $              805.52
Where,
rate Market yield 9%
nper Number of period 5
pmt Coupon payment $             40
fv Face value $       1,000
Step-2:Calculation of current yield
Current yield = Annual coupon / Current price
= $                      40 / $ 805.52
= 4.97%
Step-3:Calculation of Capital gain Yield
Capital Gain Yield = Market yield - Current yield
= 9% - 4.97%
= 4.03%
Capital gain yield should be 4.03%

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

A bond offers a coupon rate of 4%, paid annually, and has amaturity of 5 years. The current market yield is 9%. If marketconditions remain unchanged, what should be the Capital Gains Yieldof the bond?

Other questions asked by students

Q

The nature of the business of Next PLC and relevant information of the industry. (500 words) This...

Finance
Q

Find f x for the function then find f x for the given x 8...

Basic Math
Q

1 Calculate the slope of each line segment where possible RYA Find the slope of...

Basic Math
Q

The sum of 36 times a number and the reciprocal of the number is positive....

Basic Math
Q

A certain brand of mosquito repellent claims that it will effectively repel A local biologist...

Statistics
Q

Which of the following is an example of a census O Survey students about the...

Statistics
Q

Frigart Company sold goods for $13,000 with terms 2/10, n/30. How much would Frigart receive...

Accounting
Q

Which of the following statements is correct regarding a voucher system? The journal entry to...

Accounting
Q

On the first day of the fiscal year, a company issues a $3,200,000, 9%, 10-year...

Accounting
Q

Blue Spruce Inc.s manufacturing overhead budget for the first quarter of 2022 contained the following...

Accounting
Q

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The...

Accounting
Q

Jenny Enterprises has just entered a lease agreement for a new manufacturing facility. Under the...

Finance