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Homework answers / question archive / You want to figure out how much money you will make by investing in bonds

You want to figure out how much money you will make by investing in bonds

Finance

You want to figure out how much money you will make by investing in bonds. In your portfolio, you have a premium bond from Pi Corporation that pays annual coupons at 8.7%. You also own a discount bond from Delta Inc. that pays 4.7% coupons annually.  

Both bonds have twelve years to maturity and a par value of $1,000.

The market (YTM) for both bonds is 6.7%.

  a) What is the current yield for Bond Pi? For Bond Delta?

(Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 12.34.)

b) If interest rates remain unchanged, what is the expected capital gains yield over the next year for Bond Pi? For Bond Delta? 

(Hint: you will need to solve the price of each bond next year to find the capital gains yield. Each bond will have a maturity of 1 less year next year)

(A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

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