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De'Andre purchased one of XXXL Shirt Company's bonds last year when the market interest rate on similar-risk bonds was 6%. When he purchased the...
De’Andre purchased one of XXXL Shirt Company’s bonds last year when the market interest rate on similar-risk bonds was 6%. When he purchased the bond, it had seven years remaining until maturity. The bond’s coupon rate of interest (paid semiannually) is 5%, and its maturity value is $1,000. Today, the market rate on similar-risk bonds as the one De’Andre purchased one year ago is 4%. (A) If he were to sell the bond today, what return would De’Andre earn? (B) What portion of this return represents the capital gains, and what portion represents the current yield?
