Question

One year ago, Tina paid $1,000 for a bond with a coupon rate of 10%. When she purchased the bond, it had 11 years until maturity. The current market rate for bonds of this type is 9%. (Show the timeline and the FCS method).

A. Calculate the current yield (CY) of he r1-year investment.

b. Calculate the capital gains yield (CGY) of her 1-year investment.

c. Calculate the total return (TR) of her 1-year investment

Answer 1

A)
	Computation Of Bond Value
	a	Annual Coupon Amount	$       100.00
	b	Present Value Annuity Factor for (10 Years,9%)	6.417658
	c	Present Value Of Annual Interest (a*b)	$       641.77
	d	Redemption Value	$   1,000.00
	e	Present Value Of (10 Years,9%)	0.42241
	g	Present Value Of Redemption Amount (d*e)	$       422.41
	f	Bond price(c+g)	$   1,064.18
	Current Yield = Coupon amount / bond price
	=100/1064.18
	=9.4%
B)	Capital gain yield = ($1064.18-1000)/1000
	=$64.18/1000
	=6.42%
C)	Total return = Capital gain + coupon amount
	=($1064.18-1000)+100
	=$64.18+100
	=$164.18