Eight years ago, Over-the-Top Trampolines issued a 15-year bond with a $1,000 par value and a 6 percent coupon rate (interest is paid annually). Today the going rate of interest on similar bonds is 6 percent. (a) What is the bond’s current value? If the market rate stays at 6 percent for the remainder of the bond’s life, what (b) current yield and (c) capital gains yield will bondholders receive during the next two years (i.e., Years 9 and 10)?
Eight years ago, Over-the-Top Trampolines issued a 15-year bond with a $1,000 par value and a 6 percent coupon rate (interest is paid annually). Today the going rate of interest on similar bonds is 6 percent. (a) What is the bond’s current value? If the market rate stays at 6 percent for the remainder of the bond’s life, what (b) current yield and (c) capital gains yield will bondholders receive during the next two years (i.e., Years 9 and 10)?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- Eight years ago, Over-the-Top Trampolines issued a 15-year bond with a $1,000 par value and a 6 percent coupon rate (interest is paid annually). Today the going rate of interest on similar bonds is 6 percent. (a) What is the bond’s current value? If the market rate stays at 6 percent for the remainder of the bond’s life, what (b) current yield and (c)
capital gains yield will bondholders receive during the next two years (i.e., Years 9 and 10)?
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