Answered: Bond P is a premium bond with a coupon…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 10P

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Bond P is a premium bond with a coupon rate of 8 percent. Bond D is a discount bond with a coupon rate of 3 percent and is currently selling at a discount. Both bonds make annual payments, have a YTM of 5 percent, and have eight years to maturity.

1. What is the current yield for bond P and D?
2. If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P and bond D?

Bond P is a premium bond with a coupon rate of 8 percent. Bond D has a coupon rate of
3 percent and is currently selling at a discount. Both bonds make annual payments, have
a YTM of 5 percent, and have eight years to maturity.
a. What is the current yield for Bond P and Bond D? (Do not round intermediate
calculations and enter your answers as a percent rounded to 2 decimal places,
e.g., 32.16.)
b. If interest rates remain unchanged, what is the expected capital gains yield over the
next year for Bond P and Bond D? (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.)
Bond P current yield
%
а.
Bond D current yield
%
b.
Bond P capital gains yield
%
Bond D capital gains yield
%

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