Question

Suppose that you purchased a A rated $5,000 annual coupon bond with an 6.7% coupon rate and a 11-year maturity at par value. The current rate on 11-year US treasuries is 3%. Two years later, you sell the bond, and for a yield of 7.922%, what was your capital gain (+) or capital loss (-) in dollars and cents? (make your answer positive for a gain, negative for a loss)

Answer 1

Face/Par Value of bond = $5000

Annual Coupon Bond = $5000*6.7%

= $335

No of years to maturity from now (n) = 11 years - 2 years = 9

Current Yield (YTM) = 7.922%

Calculating the Selling price of Bond 2 years later:-

Price = $419.902 + $2517.562

Selling Price = $4617.07

You purchased the Bonds at Par Value which is $5000

- Capital Gain = Selling Price - Purchase Price

Capital Gain = $4617.07 - $5000

Capital Gain = -$382.93

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