A $1000-face-value bond has a 10% coupon rate, its
current price is $960, and its price is expected to
increase to $980 next year. Calculate the current yield, the
expected rate of capital gain, and the
expected rate of return.
Q)Ans:-
Step1)
A financial instrument with a fixed cost that helps a company to raise funds for business operations and does not affect the possession of the company’s owner is term as the bonds.
Step2)
Computation of the current yield:-
Hence, the current yield of the bonds is 10.42%.
Step3)
Computation of the expected rate of capital gain:-
Hence, the expected rate of the capital gain on the bonds is 2.08%.
Step4)
Computation of the expected rate of return:-
Hence, the expected rate of return on the bonds is 12.50%.
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