An 8-year, 10 percent semiannual coupon bond, with a par value of $1,000, may be called in 3 years at a call price of $1,040. The bond sells for $1,060. What is the bond's gain or loss yield?
Capital gains yield= (P1-P0)/P0 Where P1= end price and P0= Beginning price
Given that-
Current price (P0)= $1,060
Redemption value after 3 years (P1)= $1,040
Substituting these values,
Capital gain (loss) yield= ($1,040 - $1,060)/$1,060 = -1.8868% (Loss)
An 8-year, 10 percent semiannual coupon bond, with a par value of $1,000, may be called...