Correct ans a 139380 b 359 c059 d 136831 e365 f 065 A bond h

Correct ans:

a- 1,393.80, b- 3.59, c--0.59%, d- 1,368.31, e-3.65%, f- -0.65%

A bond has coupon rate 5%, YTM 3%, face value of $1000, and matures in 30 years. The interest payments are made semiannually. What is the value of the bond today? $861.62 What is the current yield this year? 1.79% What is the capital gains yield this year? 3% What is bond value in 3 years? $1,368.31 What is current yield in 3 years? 4.96% What is capital gains yield in 3 years?-2.77%

Solution

1)semiannual interest = 1000*.05*6/12 = 25

semiannual months = 30*2 = 60

semiannual yield = 3*6/12 = 1.5%

Price =[PVA 1.5%,60*Interest ] + [PVF 1.5%,60*Face value]

     = [39.38027*25]+[.40930*1000]

     = 984.51+ 409.3

    = 1393.80

**find Present value factor and annuity factor from table .

b)current yield =annual interest /price

              =[1000*.05] /1393.8

            = 50/1393.8

            = .0359 or3.59%

3) capital gain yield = YTM-current yield

            = 3 - 3.59

          = -.59 %

e)Current yield in year 3 = 50 / 1368.31 = 3.65%

f)capital gain yield in year 3 = 3 -3.65 = -.65%