1) You currently own a 4% coupon bond that makes semi-annual coupon payments and has exactly 10...
Question:
1) You currently own a 4% coupon bond that makes semi-annual coupon payments and has exactly 10 years left to maturity, the bonds current YTM is 3.5%. Use a par value of $100. Assume that in six months, immediately after receiving the next coupon payment, you decide to sell the bond at its YTM of 3.7%.
a. What is the price of the bond at each point in time?
b. What are the capital gains yield, current (or interest) yield and total return from owning the bond for the 6 months?
c. When you originally had 10 years left to maturity. The bond could have been called in 5 years and you would receive a call premium of 2.5 when the bond is called. Use the solver function in excel to find the YTC for the bond.
Finance Applications and Theory
ISBN: 978-0077861681
3rd edition
Authors: Marcia Cornett, Troy Adair