Calculate Current Yield and Capital Gain of a Bond Investment
What is the current yield and capital gain of a bond investment?
Suppose you have purchased a 10% coupon bond with a face value of 1410 KWD at a price of 1040. Suppose that after one year the bond price increased to 2480. Calculate the current yield (DO NOT multiply it by 100): Calculate the capital gain (DO NOT multiply it by 100):
Current Yield and Capital Gain Calculation
To calculate the current yield of the bond, we use the formula:
Current Yield = Annual Coupon Payment / Current Market Price
The bond has a 10% coupon rate, and the face value is 1410 KWD. Therefore, the annual coupon payment is 0.10 * 1410 = 141 KWD.
The current market price of the bond is 1040 KWD.
Current Yield = 141 / 1040 ≈ 0.1356
The current yield is approximately 0.1356.
To calculate the capital gain, we need to find the difference between the initial purchase price and the current market price.
Capital Gain = Current Market Price - Purchase Price
Capital Gain = 2480 - 1040 = 1440 KWD
The capital gain is 1440 KWD.
It's important to note that current yield represents the return on the bond as a percentage of the current market price, while the capital gain represents the increase in value of the bond from the time of purchase to the current market price.