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Goofy Inc.'s bonds currently sell for $925. They pay a $80 annual coupon, have a 25-year maturity, and a $1,000 par value. Compute the expected capital gain percentage for this year. (State as a percent, but do not include the percent sign and round to the second decimal place. Thus, 9.8765% would be written as 9.88 to be correct). (Hint: first compute the YTM and then find the capital gain.

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Answer and Explanation:

The computation of the YTM is shown below:

Given that

Future value be $1,000

NPER is 25

PMT is $80

Present value is $925

The formula is shown below:

=RATE(NPER,PMT,-PV,FV,TYPE)

After applying the above formula, the yield to maturity is 8.75%

Now the capital gain is

= 8.75% - ($80 ÷ $925)

= 8.75% - 8.65%

= 0.10%

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