Bond P is a premium bond with a coupon rate of 9.1 percent. Bond D is a discount
ID: 2773500 • Letter: B
Question
Bond P is a premium bond with a coupon rate of 9.1 percent. Bond D is a discount bond with a coupon rate of 5.1 percent. Both bonds make annual payments, have a YTM of 7.1 percent, and have six years to maturity.
What is the current yield for bond P? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
What is the current yield for bond D? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P?(Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)
If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond D?(Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Bond P is a premium bond with a coupon rate of 9.1 percent. Bond D is a discount bond with a coupon rate of 5.1 percent. Both bonds make annual payments, have a YTM of 7.1 percent, and have six years to maturity.
Requirement 1:What is the current yield for bond P? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Current yield % Requirement 2:What is the current yield for bond D? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Current yield % Requirement 3:If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P?(Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)
Capital gains yield % Requirement 4:If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond D?(Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Capital gains yield %Explanation / Answer
Bond P is a premium bond with a coupon rate of 9.1 percent. Bond D is a discount bond with a coupon rate of 5.1 percent. Both bonds make annual payments, have a YTM of 7.1 percent, and have six years to maturity.
Requirement 1:
What is the current yield for bond P? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the period) = 6
PV (indicates the price) = ?
PMT (indicate the annual payment) = 1000*9.1% = 91
FV (indicates the face value) = 1000
Rate (indicates YTM) = 7.1%
Bond Value = pv( 7.1%,6,91,1000)
Bond Value = $ 1095.04
Current yield = Coupon/Current Bond Value
Current yield = 91/1095.04
Current yield = 8.31%
Requirement 2:
What is the current yield for bond D? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the period) = 6
PV (indicates the price) = ?
PMT (indicate the annual payment) = 1000*5.1% = 51
FV (indicates the face value) = 1000
Rate (indicates YTM) = 7.1%
Bond Value = pv( 7.1%,6,51,1000)
Bond Value = $ 904.96
Current yield = Coupon/Current Bond Value
Current yield = 51/904.96
Current yield = 5.64%
Requirement 3:
If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P?(Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)
If there is no change
Capital gains yield = YTM - Current Yield
Capital gains yield = 7.1% - 8.31%
Capital gains yield = - 1.21%
Requirement 4:
If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond D?(Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
If there is no change
Capital gains yield = YTM - Current Yield
Capital gains yield = 7.1% - 5.64%
Capital gains yield = 1.46%