2. Calculating current yield, capital gain, and rate of return

A one year bond has a $1000 face value and 10% coupon rate. Its current price is $960, and its price is expected to increase to $980 next year at the end of its maturity.

a. Write a general formula used for calculating rate of return. Identify the variables. Rate of Return =

b. Calculate the current yield, the expected capital gain, and the expected rate of return at the end of 1 year. Express your results as percentages.

i. Current yield =

ii. Expected capital gain=

iii. Rate of return = Show calculations:

c. A one year bond has a $1000 face value and 10% coupon rate. Its current price is $960, and its price is expected to decrease to $875 next year at the end of its maturity. Calculate the current yield, the expected capital gain, and the expected rate of return at the end of 1 year. Express your results as percentages.

i. Current yield =

ii. Expected capital gain=

iii. Rate of return =