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Use the bond term's below to answer the question Maturity 12 years Coupon Rate 5% Face...

Use the bond term's below to answer the question
Maturity 12 years
Coupon Rate 5%
Face value $1,000
Annual Coupons
Market Interest Rate 7%

Assuming the YTM remains constant throughout the bond's life, what is percentage capital gains/loss between periods 3 and 4 ?

A. 1.20%

B. 1.29%

C. 1.31%

D. 1.25%

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Answer #1

In period 3 Price=PV(7%,9,-5%*1000,-1000)=869.6953550

In period 4 Price=PV(7%,8,-5%*1000,-1000)=880.5740299

Capital gains yield=880.5740299/869.6953550-1=1.25086041%

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