Question
Q5. The Patron Corporation issued a new series of bonds on January 1, 1985. The bonds were sold at par ($1,000); had a 14% coupon;
Q5. The Patron Corporation issued a new series of bonds on January 1, 1985. The bonds were sold at par ($1,000); had a 14% coupon; and mature in 25 years, on December 31, 2009. Coupon payments are made semiannually (on June 30 and December 31). a) What was the YTM on January 1, 1985? b) What was the price of the bonds on January 1, 1990, 5 years later, assuming that interest rates had fallen to 8%? c) Find the current yield, capital gains yield, and total return on January 1, 1990, given the price as determined in Part b. d) On July 1, 2008, 1 years before maturity, Patrons bonds sold for $916.42. What were the YTM, the current yield, the capital gains yield, and the total return at that time?
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