Bond P is a 5 percent. Both bonds premium bond with a coupon rate of 9 percent.
ID: 2810886 • Letter: B
Question
Bond P is a 5 percent. Both bonds premium bond with a coupon rate of 9 percent. Bond D is a discount bond with a coupon rate of make annual payments, have a YTM of 7 percent, and have five years to maturity Requirement 1 What is the current yieid 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: finterest 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 yieldExplanation / Answer
use PV funciton to determine the price of each bond
PMT = 90, FV = 1000, rate = 7%, N = 5
price of P = 1082.00
current yield = 90/1082.00 = 8.32%
PMT = 50, FV = 1000, rate = 7%, N = 5
price of D = 918.00
current yield = 50/918.00 = 5.45%
3
capital yield of P = 7.00% - 8.32% = -1.32%
4 capital yield of D = 7.00% - 5.45% = 1.55%