Bond Returns

A 15-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. After one year, assuming the the yield to maturity (discount rate) remains the same as previous, calculate the following returns between the two years:

1) Current yield

2) Capital gains yield

3) Total returns

Hint:

• solve the rate (yield to maturity) for this bond at year 0.
• with the same yield to maturity, solve the price for the bond with shorter maturity.
• Show all your work for full credit.

year rate 10% nper 14 pmt 85 pv ?? -925 1000 fy 1000 type excel rate calculation i i price coupon current yield capital gains yield