22Bond%20CY%20k%20Gain%20Practice%20Problems%20%28Solve%20for%20Answers%20in%20Blue%29%20SP10%20v3

22Bond%20CY%20k%20Gain%20Practice%20Problems%20%28Solve%20for%20Answers%20in%20Blue%29%20SP10%20v3

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: UNIVERSITY OF ILLINOIS College of Business - Department of Finance - Finance 300 (Financial Markets) Professor James Jackson Coupon Bonds: Current Yield, Capital Gain and Yield To Maturity Question: Does Current Yield (CY) + Average Capital Gain (Avg. k Gain) = Yield To Maturity (YTM)? Answer: No. Current Yield (CY) + Annual Capital Gain = Yield To Maturity (YTM). Example #1 Coupon Face Annual Coupon YTM Semi-Annual $1,000.00 $60.00 4.00% Bond price with 10 years to maturity (TTM) = $1,163.51 (solve using financial calculator or spreadsheet) Face – Price = $1000 - $1,163.51 = -$163.51 Total k Gain % = -$163.51 / $1,163.51 = -0.1405 CY % = $60.00 / $1,163.51 = 0.0516 Avg. k Gain = (-$163.51 / $1,163.51) / 10.00 = -0.0141 CY + Avg. k Gain = 0.0516 + (-0.0141) = 0.0375 Annual k Gain % = ($1,149.92 - $1,163.51) / $1,163.51 = -0.0117 Approximate YTM = CY + Annual k Gain =0.0516 - 0.0117 = 0.0399 Approximate YTM TTM Price Face - Price Total k Gain % CY % Avg. k Gain CY + Avg. k Gain Annual k Gain % CY + Annual k Gain 10.0 $1,163.51-$163.51-0.1405 0.0516-0.0141 0.0375-0.0117 0.0399 9.0 $1,149.92-$149.92-0.1304 0.0522-0.0145 0.0377-0.0123 0.0399 8.0 $1,135.78-$135.78-0.1195 0.0528-0.0149 0.0379-0.0130 0.0399 7.0 $1,121.06-$121.06-0.1080 0.0535-0.0154 0.0381-0.0137 0.0399 6.0 $1,105.75-$105.75-0.0956 0.0543-0.0159 0.0383-0.0144 0.0399 5.0 $1,089.83-$89.83-0.0824 0.0551-0.0165 0.0386-0.0152 0.0398 4.0 $1,073.25-$73.25-0.0683 0.0559-0.0171 0.0388-0.0161 0.0398 3.0 $1,056.01-$56.01-0.0530 0.0568-0.0177 0.0391-0.0170 0.0398 2.0 $1,038.08-$38.08-0.0367 0.0578-0.0183 0.0395-0.0180 0.0398 1.0 $1,019.42-$19.42-0.0190 0.0589-0.0190 0.0398-0.0190 0.0398 0.5 $1,009.80-$9.80-0.00971 0.059417-0.009708738 0.04971 UNIVERSITY OF ILLINOIS...
View Full Document

{[ snackBarMessage ]}

Page1 / 4

22Bond%20CY%20k%20Gain%20Practice%20Problems%20%28Solve%20for%20Answers%20in%20Blue%29%20SP10%20v3

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online