Question

1. What expected first year’s Total Return (Total Yield) and Capital Gains Yield, respectively, for the above discount bond on a 14-year to maturity, 7% annual coupon payments, $1,000 Face value bond sell for the price of $542.042?

2. The Reported Interest Expense of the above bond for the first year should be ($)

Debit of 70

Credit of 81.306

Credit of 70

Debit of 81.306

3. The Reported $-amount of Amortization for the above bond for the first year should be ($)

Debit of 81.306

Credit of 11.306

Debit of 11.306

Credit of 81.306

4.

Now assume that the above bond will pay you a call premium of $100 if it’s called in 6 years.

The yield to call is

		27.62%
		22.62%
		16.62%
		18.62%

Answer 1

1)

Hence,

Total return is 15.00%

Capital gain yield is 2.09% (15%-$70/$542.02)