Question
What is the current yield, the capital gains yield, and the total return in the preceding question? Preceding Question: What is the yield to maturity
What is the current yield, the capital gains yield, and the total return in the preceding question?
Preceding Question:
"What is the yield to maturity on a 10-year, 9 percent annual coupon, $1,000 par value bond that sells for $887.00? That sells for $1,134.20? What does the fact that a bond sells at a discount or at a premium tell you about the relationship between rd and the bonds coupon rate?
Par value = 1000
Coupon rate = 9% Coupon payment = 1000 * 0.09 = 90 Time = 10 years Price = 887
If Coupon rate > Yield to maturity, then Bond will be trading at premium
If Coupon rate < Yield to maturity, then Bond will be trading at discount
So in our case,since bond is trading at discount ( $887) from Par value ($1000), yield to maturity will be higher than the coupon rate
Yield to maturity formula = { Coupon payment + ( Par value - Price ) / Time } / { (Par value + Price) / 2 }
Yield to maturity formula = { 90 + ( 1000 - 887 ) / 10} / { (1000 + 887) / 2 }
Yield to maturity formula = 11%
Par value = 1000 = FV
Coupon payment = 90 = PMT
Time = 10 years = NPER
Price = 887 = PV
rate = 10.91%"
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