CFIN
6th Edition
ISBN: 9780357144039
Author: BESLEY
Publisher: CENGAGE L
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Chapter 6, Problem 16PROB
Summary Introduction
To calculate: Current yield and
Introduction: Bond refers to the financial instruments that are issued to raise funds from the public for a fixed maturity period and a fixed interest rate is paid. The capital gain yield on the bond can be determined by subtracting the previous market price and the current market and dividing the arrived value by the previous market price of the bond.
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Suppose that Ally Financial Inc. issued a bond with 10 years until maturity, a face value of $1,000, and a coupon rate of 10% (annual payments). The yield to maturity
on this bond when it was issued was 4%.
a. What was the price of this bond when it was issued?
b. Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment?
c. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon payment?
a. What was the price of this bond when it was issued?
The price of this bond when it was issued was $
(Round to the nearest cent.)
b. Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon payment?
The price before the first payment is $. (Round to the nearest cent.)
c. Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon…
Gabby's Garage issued a bond with a 10-year maturity, a $1,000 par value, a 10 percent coupon rate, and semiannual interest payments. Two years after the bond was issued, the going rate of interest on similar-risk bonds fell to 6 percent. Suppose the market rate stays at this level for the remainder of the bond's life. Compute the (a) current yield ans (b) capital gains yield that the bond will generate in the third year (Year 3) of its life.
Gabby’s Garage issued a bond with a 10-year maturity, a $1,000 par value, a 10 percent coupon rate, and semiannual interest payments. Two years after the bond was issued, the going rate of interest on similar-risk bonds fell to 6 percent. Suppose the market rate stays at this level for the remainder of the bond’s life. Compute the (a) current yield and (b) capital gains yield that the bond will generate in the third year (Year 3) of its life.
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