A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8% with interest paid annually. If the current market price is $750, what is the capital gain yield of this bond over the next year

4.92%

Explanation:

we have to calculate the market price of the bond in one year from now but in order to do this we have to calculate the yield to maturity:

YTM = {80 + [(1,000 - 750)/10] / [(1,000 + 750)/2] = 105 / 875 = 12%

the market price of the bond in one year is:

PV of face value = $1,000 / 1.12⁹ = $360.61

PV of coupon payments = $80 x 5.3282 (PV annuity factor, 12%, 9 periods) = $426.26

market price one year from now = $786.87

capital gains yield = ($786.87 - $750) / $750 = 4.92%

in terms of experimental research, mcdonald’s charging different prices in the two cities relates to

answer(d) encourage cooperation by improving the chances of mutually agreeable transactions;