Question

David Bowie bonds pay their coupons from royalties generated by sales of David​ Bowie's past recordings....

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

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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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