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Compute the capital gains yield that the bond will generate

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Problem - Gabby's Garage issued a bond with a 10-year maturity, a $1,000 par value, a 10 percent coupon rate, and semiannual interest payments. Two years after the bond was issued, the going rate of interest on similar-risk bonds fell to 6 percent. Suppose the market rate stays at this level for the remainder of the bond's life. Compute the (a) current yield (b) capital gains yield that the bond will generate in the third year (Year 3) of its life.

Reference no: EM132697395

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