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A bond offers a coupon rate of 12%, paid annually, and has a maturity of 9...

A bond offers a coupon rate of 12%, paid annually, and has a maturity of 9 years. The current market yield is 11%. If market conditions remain unchanged, what should be the Capital Gains Yield of the bond?

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Answer #1

Current yield =Coupon/current price

11%=120/Current price

Current price =1090.91

Capital gains yield =Current price/Face value-1

Capital gains yield =1090.91/1000-1

Capital gains yield =9.09%

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