Question

David Bowie bonds pay their coupons from royalties generated by sales of David Bowie's past recordings. The bonds have 12 years remaining to maturity, pay annual coupons (yesterday) of $85, and have a face value of $1000. The current price of the bonds is $783.20 to yield 12%. What is the capital gain percentage increase for the coming year if the yield to maturity remains constant? Show your work

Answer #1

_______________________________

_______________________________

**Value of Bond
next year**

**Value of Bond** **=
**

Where r is the discounting rate of a compounding period i.e. 12%

And n is the no of Compounding periods 11 years

Coupon 85

=

= 792.18

Capital Gain = 792.18 - 783.20 / 783.20

= 1.15%

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