A 10-year, $1,000 par value bond has a 6.25% coupon rate with interest paid semiannually. The bond currently sells for $825. What is the capital gains yield on these bonds? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.
1.36%
| Step-1:Calculation of yield to maturity | ||||
| Yield to maturity (YTM) | =rate(nper,pmt,pv,fv)*2 | |||
| = 8.93% | ||||
| Where, | ||||
| nper | = | 10*2 | = | 20 |
| pmt | = | 1000*6.25%*6/12 | = | $ 31.25 |
| pv | = | $ -825.00 | ||
| fv | = | $ 1,000.00 | ||
| Step-2:Calculation of current yield | ||||
| Current Yield | = | Annual coupon | / | Current Price |
| = | $ 62.50 | / | $ 825.00 | |
| = | 7.58% | |||
| Working: | ||||
| Annual coupon | = | Par Value | * | Annual coupon rate |
| = | $ 1,000.00 | * | 6.25% | |
| = | $ 62.50 | |||
| Step-3:Calculation of capital gain yield | ||||
| Capital Gain Yield | = | YTM | - | Current Yield |
| = | 8.93% | - | 7.58% | |
| = | 1.36% |
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