Bond Returns: A 15-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently...

60.1K

Verified Solution

Question

Finance

Bond Returns:
A 15-year, $1,000 par value bond has an 8.5% annual paymentcoupon. The bond currently sells for $925. After one year, assumingthe the yield to maturity (discount rate) remains the same asprevious, calculate the following returns between the twoyears:
1) Current yield
2) Capital gains yield
3) Total returns
Hint:
solve the rate (yield to maturity) for the 25-year bond.
with the same yield to maturity, solve the price for the bondwith shorter maturity.
Show all your work for full credit.
year 0 1
rate ?? 10%
nper 15 14
pmt 85 85
pv -925 ??
fv 1000 1000
type 0 0
excel rate pv
calculation ?? ??
price ?? ?? <-- from calculation
coupon ?? <-- from bond specifications
current yield ?? <-- coupon / last price
capital gains yield ?? <-- % change in price
Total return ?? <-- current yield + capital yield

Answer & Explanation Solved by verified expert

4.3 Ratings (664 Votes)

See Answer

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

Bond Returns:A 15-year, $1,000 par value bond has an 8.5% annual paymentcoupon. The bond currently sells for $925. After one year, assumingthe the yield to maturity (discount rate) remains the same asprevious, calculate the following returns between the twoyears:1) Current yield2) Capital gains yield3) Total returnsHint:solve the rate (yield to maturity) for the 25-year bond.with the same yield to maturity, solve the price for the bondwith shorter maturity.Show all your work for full credit.year01rate??10%nper1514pmt8585pv-925??fv10001000type00excelratepvcalculation????price????<-- from calculationcoupon??<-- from bond specificationscurrent yield??<-- coupon / last pricecapital gains yield??<-- % change in priceTotal return??<-- current yield + capital yield

year	0	1

rate	??	10%
nper	15	14
pmt	85	85
pv	-925	??
fv	1000	1000
type	0	0


excel	rate	pv
calculation	??	??

price	??	??	<-- from calculation
coupon		??	<-- from bond specifications
current yield		??	<-- coupon / last price
capital gains yield		??	<-- % change in price
Total return		??	<-- current yield + capital yield