Gabbys Garage issued a bond with a 10-year maturity, a $1,000 par value, a 10 percent coupon

Question:

Gabby’s Garage issued a bond with a 10-year maturity, a $1,000 par value, a 10 percent coupon rate, and semiannual interest payments. Two years after the bond was issued, the going rate of interest on similar-risk bonds fell to 6 percent. Suppose the market rate stays at this level for the remainder of the bond’s life. Compute the

(a) Current yield

(b) Capital gains yield that the bond will generate in the third year (Year 3) of its life.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...

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