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1
1
(1+.05)50 1000
=60 +
.05 1+.05 50
=1182.559255 or 1182.56
C. Find the current yield, capital gains
yield, and total return on January 1,1993
given the price as determined in the Part
b. Current Yield = Annual Coupon Payment/Price
= $120/$1182.56
= 0.1015 = 10.15%
Capital Gains Yield = Total Yield Current Yield
= 10% - 10.15%
= -15%
Total Return = YTM = 10%
D. On July 1,2011, 6 years before maturity,
Penningtons bonds sold for $916.42. What were the
YTM, the current yield, the capital gains yield, and
the total return that year?
Given
1
FV=$1000 1
(1+)
N = 25 Years BV=INT +
1+
i = 10%
INT = $120
E. Now assume that you plan to purchase an
outstanding Penningtons bond on March 1,
2011, when the going rate of interest given its
risk was 15.5%. How large a check must you
write to complete transaction?
Given
FV=$1000
N = 13
i = 15.5%
INT = $120
E. Now assume that you plan to purchase an
outstanding Penningtons bond on March 1,
2011, when the going rate of interest given its
risk was 15.5%. How large a check must you
write to complete transaction?
1/1/11 7/1/11 1/1/12 7/1/12 1/1/13 12/31/17
3/1/11
N=13 Periods
(6.5years x 2)
E. Now assume that you plan to purchase an
outstanding Penningtons bond on March 1, 2011,
when the going rate of interest given its risk was
15.5%. How large a check must you write to
complete transaction?
1
1
(1+)
BV=INT +
1+
1
1
(1+.0775)13 1000
BV=60 +
.0775 1+.0775 13
=P859.76
E. Now assume that you plan to purchase an
outstanding Penningtons bond on March 1, 2011,
when the going rate of interest given its risk was
15.5%. How large a check must you write to
complete transaction?
Total Value=BV+INT
=P859.60+60
=P919.76
E. Now assume that you plan to purchase an
outstanding Penningtons bond on March 1, 2011,
when the going rate of interest given its risk was
15.5%. How large a check must you write to
complete transaction?
1
1
(1+)
BV=INT +
1+
1
1 4
(1+.0775) 6 919.76
BV=0 + 4
.0775 1+.0775 6
=P875.11