Question

# Wee Beastie Animal Farm bonds have 9 years to maturity and pay an annual coupon at...

Wee Beastie Animal Farm bonds have 9 years to maturity and pay an annual coupon at the rate of 6.2 % . The face value of the bonds is \$ 1,000 . The price of the bonds is \$ 1,091.31 to yield 4.92 % . What is the capital gain yield on the? bonds?

The capital gain yield? is:???(Select the best choice? below.)

A. negative 0.73

B. plus 0.62 %

C. negative 0.77 %

D. negative 0.76 %

E. plus 0.68 %

Face Value = \$1,000

Annual Coupon Rate = 6.2%
Annual Coupon = 6.2% * \$1,000
Annual Coupon = \$62

Time to Maturity = 9 years
Annual YTM = 4.92%

Current Price, P0 = \$1,091.31

Next Year Price, P1 = \$62 * PVIFA(4.92%, 8) + \$1,000 * PVIF(4.92%, 8)
Next Year Price, P1 = \$62 * (1 - (1/1.0492)^8) / 0.0492 + \$1,000 / 1.0492^8
Next Year Price, P1 = \$1,083.00

Capital Gain Yield = (P1 - P0) / P0
Capital Gain Yield = (\$1,083.00 - \$1,091.31) / \$1,091.31
Capital Gain Yield = -0.0076
Capital Gain Yield = -0.76%

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