Bond P is a premium bond with a coupon rate of 8.1 percent. Bond D is a discount
ID: 2779571 • Letter: B
Question
Bond P is a premium bond with a coupon rate of 8.1 percent. Bond D is a discount bond with a coupon rate of 4.1 percent. Both bonds make annual payments, have a YTM of 6.1 percent, and have six years to maturity.
What is the current yield for bond P?
Answer: 7.38%
What is the current yield for bond D?
Answer: 4.54%
If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P?
Answer: -1.28%
If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond D?
Answer: 1.55%
Bond P is a premium bond with a coupon rate of 8.1 percent. Bond D is a discount bond with a coupon rate of 4.1 percent. Both bonds make annual payments, have a YTM of 6.1 percent, and have six years to maturity.
What is the current yield for bond P?
Answer: 7.38%
What is the current yield for bond D?
Answer: 4.54%
If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P?
Answer: -1.28%
If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond D?
Answer: 1.55%
Explanation / Answer
Bond P is a premium bond with a coupon rate of 8.1 percent. Bond D is a discount bond with a coupon rate of 4.1 percent. Both bonds make annual payments, have a YTM of 6.1 percent, and have six years to maturity.
Current yield of Bond = coupon rate / Price Of bond
Price of Bond P 41(PVIFA6.1%,6) + 1000(PVIF6.1%,6) =1098.038
Price of Bond D 81(PVIFA6.1%,6) + 1000(PVIF6.1%,6) =915.981
Current yield of Bond P = 81/1098.038 =7.38%
Current yield of Bond D = 41/901.96 =4.54%
If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P?
We have to find the price of bond one year After
Capital gains yield =(New Price – Original Price)/Original Price
Price of Bond P141(PVIFA6.1%5) + 1000(PVIF6.1%,5) =1084.019
(1084.019-1098.038)/1084.019 =-1.28%
If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P?
We have to find the price of bond one year After
Capital gains yield =(New Price – Original Price)/Original Price
Price of Bond D181(PVIFA6.1%,5) + 1000(PVIF6.1%,5) =901.96
=(915.98-901.96)/901.96=1.55%