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: Flex 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

Geometry
1.2K views

What is the slope of the line passing through the points 6 6 and 7...

Civil Engineering
1.2K views

‏Q4. Compare and explain the common relationship between the units of angular ‏measurement with neat labelled sketch. ‏Q5....

Geometry
1.2K views

For loga y to be defined a y 0 b a 0 a 1 Select...

Statistics
1.2K views

3 st Quatile 11 median 13 Third Quartile 16 MAX VAI 17 11 13 16...

Calculus
1.2K views

valuate the indefinite integral S x 52 x 6x

Accounting
1.2K views

i help figuring...

Accounting
1.2K views

The payment of a liability increases assets and decreases liabilities. decreases assets and stockholders' equity....

Accounting
1.2K views

An auditor examines debt agreements to determine if inventory is pledged as collateral. This audit...

Accounting
1.2K views

Pacific Ink had beginning work-in-process inventory of $1,070,790 on October 1. Of this amount, $436,900...

Accounting
1.2K views

Incomplete manufacturing cost data for Horizon Company for 2017 are presented as follows for four...

Accounting
1.2K views

Hull Company reported the following income statement information for the current year: Sales \table[[$,427,000],[$,157,500,],[290,000,],[447,500,],[161,000,],[,286,500],[$,140,500?

Finance
1.2K views

Primabumi Pte. Ltd (Primabumi) was incorporated on 5 January 2013. Primabumis business is importing and...