A bond pays an annual coupon on a face value of $1,000. The bond is currently...
A bond pays an annual coupon on a face value of $1,000. The bond is currently trading at $950 and its yield is 7%. I buy the bond today and sell it immediately after I receive the next coupon one year from now, at which time its yield is still 7%. If my capital gain is 5%, then what is the bond's coupon rate?
Homework Answers
yield=capital yield+current yield
=>current yield=7%-5%=2%
=>coupon rate*face value/price=2%
=>coupon rate=950*2%/1000=1.90%
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