What is each bonds expected capital gains yield today

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Use the following corporate bond quote information to answer the questions that follows. since this is a corporate bond, assume the company makes semi-annual coupon payments and also assume the bond matures on today's date in its maturity year.

Bond                          Cur.Yld.     Vol.    close            Net Chg.

Doh! 9 1/2 18                    9.0            5       105 1/2           -1/4

Doh! 8 1/2 21                     9.4           10      90 1/4             -1/2

1. How much would each bond cost you to buy today if its face value is $1000?

2. How much would each bond cost you yesterday if its face value were $1000?

3. What is each bond's yield to maturity?

4. What is each bond's expected capital gains yield today?

5. Now imagine you purchased each bond today at the current price. a year later the yield to maturity for each bond falls by one percentage point. what is your total rate of return for each bond?

6. Now imagine same scenario in #5 except the yield to maturity for each bond increases one percentage point for each bond a year later. What is your total rate of return for each bond?

7. Which bond do you prefer in #5 and what type of risk are you more exposed to if you choose this particular bond?

8. Which bond do you prefer in #6 and what type of risk are you more exposed to if you choose this particular bond?

Reference no: EM13765034

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