Question
You want to figure out how much money you will make by investing in bonds. In your portfolio, you have a premium bond from Pi
You want to figure out how much money you will make by investing in bonds. In your portfolio, you have a premium bond from Pi Corporation that pays annual coupons at 8.9%. You also own a discount bond from Delta Inc. that pays 4.9% coupons annually. Both bonds have fourteen years to maturity and a par value of $1,000. The market (YTM) for both bonds is 6.9%. a. What is the current yield for Bond Pi? For Bond Delta? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 12.34.) b. If interest rates remain unchanged, what is the expected capital gains yield over the next year for Bond Pi? For Bond Delta? (Hint: you will need to solve the price of each bond next year to find the capital gains yield. Each bond will have a maturity of 1 less year next year) (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.)
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