Question

Ezzell Enterprises' noncallable bonds currently sell for $1,203.75. They have a 5-year maturity, semi-annual coupon rate...

Ezzell Enterprises' noncallable bonds currently sell for $1,203.75. They have a 5-year maturity, semi-annual coupon rate of 12.00%, and a par value of $1000. What is the bond's capital gain or loss yield?

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Answer #1

Using financial calculator BA II Plus - Input details:

#

FV = Future Value / Face Value =

-$1,000.00

PV = Present Value =

$1,203.75

N = Number of years remaining x frequency =

10

PMT = Payment = Coupon / frequency =

-$60.00

CPT > I/Y = Rate per period or YTM per period =

              3.544575

YTM annual = Periodic YTM*frequency / 100 = 3.544575 x 2 /100 =

7.0891%

Current Yield = |PMT|*frequency / PV = 60 x 2 /1203.75 = 9.9688%

.

Capital gain or loss yield = YTM - Current yield = 7.0891% - 9.9688% = -2.8797%

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