1. The corporate bond of Blue Sky Industrial currently sells at $1,094.00. The bond has an annual coupon rate of 6% and a face value of $1,000. There are 12 years remaining to maturity.
a) What is the current yield of the bond?
b) What is the bond’s yield-to-maturity? (You may show calculator entries here).
c) What is the capital gains yield of the bond? (Show this in two ways if possible ).
2. A bond with 3 years remaining to maturity has an annual coupon rate of 8.5%, and a face value of $1,000. Assume the yield to maturity is 7.00% and answer the questions below. (You may use a financial calculator to get the PV of the bond in this problem – but show your calculator entries, i.e., 1000 FV, etc).
a) What is the duration of this bond?
b) If interest rates fall 0.15% from the given YTM, by what percent will the bond change in value? Show these 2 ways (using modified duration and the capital gains formula method).