Question
A $\$ 1,100$ -face-value bond has a $5 \%$ coupon rate, its current price is $\$ 1,040,$ and it is expected to increase to $\$ 1070$ next year. Calculate the current yield, the expected rate of capital gains, and the expected rate of return.
Step 1
The current yield is calculated by dividing the coupon rate by the current price. The coupon rate is 5% of the face value of the bond, which is $1100. So, the coupon rate is $0.05 \times 1100 = \$55$. The current price of the bond is $1040. So, the current yield Show more…
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