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On January 1, 2017, Alpha Inc. issued a 10-year bond. The bond featured an annual 8% coupon ($80 once a year) and a par

 

On January 1, 2017, Alpha Inc. issued a 10-year bond. The bond featured an annual 8% coupon ($80 once a year) and a par value of $1,000. Within minutes of issuing the bond. Alpha announced financial problems, and the terms of the bond were renegotiated overnight. Going forward, Alpha will only pay a 6% coupon ($60 once a year) and $800 at maturity. The YTM rose to 21.00% on January 2, 2017. Being an astute hedge fund manager, you decide to buy the bond at its now depressed price, looking to earn a high (but risky) yield. Assuming Alpha can deliver on the new renegotiated cash flows, what is your expected capital gain yield for the first year?

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