On January 1, 2017, Alpha Inc. issued a 10-year bond. The bond featured an annual 8%...
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On January 1, 2017, Alpha Inc. issued a 10-year bond. The bond featured an annual 8% coupon ($80 once a year) and a par value of $1,000. Within minutes of issuing the bond. Alpha announced financial problems, and the terms of the bond were renegotiated overnight. Going forward, Alpha will only pay a 6% coupon ($60 once a year) and $800 at maturity. The YTM rose to 21.00% on January 2, 2017. Being an astute hedge fund manager, you decide to buy the bond at its now depressed price, looking to earn a high (but risky) yield. Assuming Alpha can deliver on the new renegotiated cash flows, what is your expected capital gain yield for the first year? On January 1, 2017, Alpha Inc. issued a 10-year bond. The bond featured an annual 8% coupon ($80 once a year) and a par value of $1,000. Within minutes of issuing the bond. Alpha announced financial problems, and the terms of the bond were renegotiated overnight. Going forward, Alpha will only pay a 6% coupon ($60 once a year) and $800 at maturity. The YTM rose to 21.00% on January 2, 2017. Being an astute hedge fund manager, you decide to buy the bond at its now depressed price, looking to earn a high (but risky) yield. Assuming Alpha can deliver on the new renegotiated cash flows, what is your expected capital gain yield for the first year?
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To calculate the expected capital gain yield we need to first determine the bonds new price after th... View the full answer
Related Book For
Advanced Accounting
ISBN: 978-1259444951
13th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupni
Posted Date:
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