The cash flow component of bond investments is made up of the annual interest payments and the future redemption value or its par value. Just like other time-value-of-money considerations, the bond cash flows are discounted back in order to determine their present value.

In comparing bonds to stocks, many investors look at the respective returns. The total returns in the bond market are made up of both current income and capital gains. Bond investment analysis should include the determination of the current yield as well as a specific holding period return.

On January 13, 2016, you gather the following information on three corporate bonds issued by the General Pineapple Corporation (GPC). Remember that corporate bonds are quoted as a percentage of their par value. Assume the par value of each bond to be \($1,000.\) These debentures are quoted in eighths of a point. Create a spreadsheet that will model and answer the following bond investment problems.

Questions

a. Calculate the current yields for these 3 GPC corporate debentures.

b. Calculate the holding period returns under the following scenarios.
1. Purchased the 5.3 bonds for \($990\) on January 13, 2015 2. Purchased the 6.65s for \($988\) on January 13, 2015 3. Purchased the 7.4 bonds for \($985\) on January 13, 2013

c. As of January 13, 2016, GPC common stock had a close price of \($26.20.\) The price of GPC stock in January 2013 was \($25.25.\) The stock paid a 2013 dividend of \($0.46,\) a 2014 dividend of \($0.46,\) and a 2015 dividend of \($0.46\).

1. Calculate the current (January 13, 2016) dividend yield for this security.

2. Assuming you purchased the stock in January 2013, what is the holding period return as of January 2015?

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Bonds Current Yield Volume Close GPC 5.3 13 ? 25 10578 GPC 6.65s 20 ? 45 103 GPC 7.4 22 ? 37 104%