One bond has a coupon rate of 7.8%, another a coupon rate of 9.4%. Both bonds pay interest annually, ahve 7-year maturities, and sell at a yield to maturity of 7%. a. If their yields to maturity next year are still 7%, what is the rate of return on each bond?

One bond has a coupon rate of 7.8%, another a coupon rate of 9.4%. Both bonds pay interest annually, ahve 7-year maturities, and sell at a yield to maturity of 7%. a. If their yields to maturity next year are still 7%, what is the rate of return on each bond?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 3P: Current Yield for Annual Payments Heath Food Corporations bonds have 7 years remaining to maturity....

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Question

One bond has a coupon rate of 7.8%, another a coupon rate of 9.4%. Both bonds pay interest annually, ahve 7-year maturities, and sell at a yield to maturity of 7%.

a. If their yields to maturity next year are still 7%, what is the rate of return on each bond?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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Current Yield for Annual Payments Heath Food Corporations bonds have 7 years remaining to maturity. The bonds have a face value of 1,000 and a yield to maturity of 8%. They pay interest annually and have a 9% coupon rate. What is their current yield?