Calculate the coupon rate of the bond

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Reference no: EM13819137

A coupon bond has a face value of $1,000 and maturity 5 years. The required rate of return for the bond is 5%.

(1) The bond is sold at a price of $1,000 now. Calculate the coupon rate of the bond.

(2) Year by year, calculate the current yield and the capital gain for the bond. Are the rate of returns constant?

(3) Now that an unexpected shock happens suddenly at the end of year 3 which drives the required rate of return to 7%. What is the average return of the bond for the whole 5 years?

Reference no: EM13819137

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