Seattle Seafood Company SSC has an issue of 7year 8 annual c

Seattle Seafood Company (SSC) has an issue of 7-year, 8% annual coupon bonds outstanding. The bonds, which were originally issued 15 years ago, have a face value (FV) of $1,000, a yield-to-maturity (YTM) of 10%, and are noncallable. What is the current market price of SSC’s bonds?

$1,128.29

$767.24

$902.63

$992.89

Are the bonds of Seattle Seafood Company selling at a discount, at par, or at a premium?

Discount

Par

Premium

What is the current yield on Seattle Seafood Company’s outstanding bonds?

8.06%

10.43%

7.09%

8.86%

What is the expected one-year capital gain yield on the bonds of Seattle Seafood Company?

0.91%

1.34%

1.14%

1.03%

Solution

N = 7, FV = 1000, PMT = 80, rate = 10%

use PV function in Excel

price = 902.63

b. Discount

c. Current yield = 80/902.63 = 8.86%

d. one year capital gain yield = 10% - 8.86% = 1.14%