Question
ABC Corporation issued at par $100 million semi-annual coupon-paying bonds on January 1, 2010. The bonds YTM at issuance was 8% (APR). The bond matures
ABC Corporation issued at par $100 million semi-annual coupon-paying bonds on January 1, 2010. The bonds YTM at issuance was 8% (APR). The bond matures on January 1, 2020. i) Compute the market value of this bond on January 1, 2011 if it was priced to produce an effective semi-annual yield to maturity of 6% on that date. (5 marks) ii) Assume the bond is sold on January 1, 2011. Calculate the current yield and 1- year capital gains yield (CGY1-year). (6 marks) iii) Can the 1-year total yield be determined by the sum of current yield and capital gains yield? Explain your answer. (2 marks)
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