iRI.com/Student/PlayerHomeworkaspx?homeworkid 4994028828questic Money & Banking-

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iRI.com/Student/PlayerHomeworkaspx?homeworkid 4994028828questic Money & Banking-Fall 2018 Homework: homework 2 Score: 0 of 1 pt End-of-Chapter Exerise 24 A bond has a face value of S900 and a 5% coupon rate, its current price is S840, and it is expected to increase Sa 13 of 26 (21 complete) w score: 71.15%, 18 5 Question Help : to $880 next year The current yield is 5.4 % (Enter your response rounded to one decimal place) The expected rate of capital gain is% Enter your response rounded to one decimal place) Enter your answer in the answer box and then click Check Answer Clear All Check Answe part remaining 9:13 PM d9/27/2018

Explanation / Answer

Answer : Current Yield = Annual interest payment/ Current market price

Current Yield =( 45/ 840)×100= 5.35% or 5.4%

Expected capital gain = % change in bond price

Expected capital gain = (Future price - Current price)/ Current price

Future price = $880

Current price = $840

Expected capital gain. = (( 880-840)/840)*100

Expected capital gain =4.76% or 4.8%

Therefore the expected capital gain from bond is 4.8%

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