A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8% with interest paid annually. If the current market price is $750, what is the capital gain yield of this bond over the next year?

Question

Quizplus · Accepted Answer

Calculator entries to find the YTM are N = 10, PV = −750, PMT = 80, FV = 1,000, CPT = I/Y →12.52
The current yield = 80/750 = 10.67%
Then we use the relationship YTM = Current yield + Capital gain yield
12.52% = 10.67% + Capital gain yield, so Capital gain yield = 1.85%

A Bond Has a Par Value of $1,000, a Time