Problem:
Assume that you are considering the purchase of a 30 year bond with an annual coupon rate of 7.5%. The bond has a face value of $1,000 and makes semiannual interest payments. If you require a 6.50% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for this bond?
Now assume market conditions have changed and you are given additional information regarding the bond in problem 1. The bond is now selling for $875.00. What is the capital gains yield if you purchase this bond at $875.00? Please describe in detail and provide step by step solution.