Chapter 10, Problem 21PS

Summary Introduction

To calculate:

The yield to maturity of a bond having 10 years maturity and par value of $1000, coupon rate of 8% and to find the capital gain over the next year if the yield to maturity does not change

Introduction:

Bonds are debt securities. These promise to provide the holder with a fixed income or an income which is calculated as per a formula. Fixed income securities is another term used for debt securities. Bonds are securities which are provided in connection with borrowing arrangement. Over a certain period of time, the issuer is obliged to make specific payments to the holder in this type of securities. Coupon bonds are debt obligations where the semi-annual interest payments are made. In the time between issuing of the bond and the maturity of the bond, the bond holders get coupon payments.