Question
You hold two bonds. You own a $1,000 face value bond from Company B that has 5.8% coupons paid once per year, and thirteen years
You hold two bonds. You own a $1,000 face value bond from Company B that has 5.8% coupons paid once per year, and thirteen years to maturity. The other is a $1,000 face value bond from A Corporation that has 9.8% coupons paid once per year, and thirteen years to maturity. The market (YTM) for both bonds is 7.8%.
|
a. | What is the current yield for Bond A? For Bond B? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 12.34.)
|
b. | If the YTM remains unchanged,
What is the expected Capital Gains Yield over the next year for Bond A? For Bond B?
(Hint: you will need to solve the price of each bond next year to find the capital gains yield.
(A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started