Problem 7-11 Bond yields One year ago Clark Company issued a 10-year, 13% semian
ID: 2775415 • Letter: P
Question
Problem 7-11
Bond yields
One year ago Clark Company issued a 10-year, 13% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065, and it now sells for $1,270.
a) What is the bond's nominal yield to maturity? Round your answer to two decimal places.
What is the bond's nominal yield to call? Round your answer to two decimal places.
b) What is the current yield? (Hint: Refer to Footnote 7 for the definition of the current yield and to Table 7.1.) Round your answer to two decimal places.
c) What is the expected capital gains (or loss) yield for the coming year? Round your answer to two decimal places.
Explanation / Answer
A)
b)
Current yield:
=Coupon payment÷Bond price
= $130÷$1,270
= 10.24%
c) Market interest rates are required to answer this sub-part
Face value (FV) 1,000 Coupon rate 13.00% Number of compounding periods per year 2 Interest per period (PMT) 65.00 Bond price (PV) - 1,270.00 Number of years to maturity 9 Number of compounding periods till maturity (NPER) 18 Bond Yield to maturity RATE(NPER,PMT,PV,FV) Bond Yield to maturity 8.63% RATE(18,65,-1270,1000)*2