Answer to Question #66167 in Economics of Enterprise for Kari Stanislaus

Question

MJI Corporation bonds mature in 6 years and have a yield to maturity of 8.5 percent. The par value of the bonds is $1,000. The bonds have a 10 percent coupon rate and pay interest on a semiannual basis. Assuming there are no changes to interest rates during the course of the year, what are the current yield and capital gains yield on the bonds for this year?

Answer 1

MJI Corporation bonds mature in 6 years, yield to maturity is 8.5 percent, par value is $1,000. The bonds pay a 10 percent coupon rate semiannually.
The current yield is 1,000*8.5*2 = $170.
Capital gains yield on the bonds for this year is 1,000*0.1/2*2 = $100.