A bond has a face value of $800 and a 10% coupon rate, its current price...

Question

Question

business economics

Answer 1

Answer #1

Answer : Current yield on bond = Annual interest payment/ Current market price

Annual interest payment = $800*0.10= $80

Market price = $740

Current yield on bond= $80/$740= 0.1081*100= 10.81%

Expected rate of capital gain =( ( New price - Old price) / Old price)*100= ((750-740)/740)*100= 1.35%

Expected rate of return on bonds = Current yield + Rate of capital gain = 10.81% + 1.35%= 12.16%

Answer 2

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