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A bond has a par value of $1000, a time to maturity of 12 years and...

A bond has a par value of $1000, a time to maturity of 12 years and a coupon rate of 6% with interest paid annually. If the current market price is $925, what will be the approximate capital gain yield of this bond over the next year if its yield to maturity remains unchanged? Answer in percentages with two decimal places

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Answer #1

1. YTM of Bond = 9.05%

2. Current Yield = Coupon Rate / Current Price = $60 / 925 = 6.49%

3. Capital gains Yield = YTM - Current Yield

Capital gains Yield = 9.05% - 6.49%

Capital gains Yield = 2.56%

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