Percentages need to be entered in decimal format, for instance 3% would be entered as .03.)

Jenna bought a bond that was issued by Sherlock Watson Industries (SWI) three years ago. The bond has a $1,000 maturity value, a coupon rate equal to 9%, a market rate (yield to maturity) of 10%, and it matures in 17 years. Interest is paid every six months; the next interest payment is scheduled six months from today.

If the yield on a similar risk investment is 11%, what is the current market value (price) of the bond?

What is the capital gains yield, current yield, and total yield that will be earned if the bond is held until it matures? Assume that the market rate does not change from now until maturity.

Suppose that Jenna wants to sell her bond seven years from today when 10 years remain until maturity. If the market rate is 8% at the time she sells the bond in seven years, for what price will Jenna be able to sell the bond? What would be the capital gains yield, current yield, and total yield that the new investor will earn if he/she holds the bond until it matures 10 years later?

Suppose that Jenna just bought a newly issued 15-year bond with a coupon rate equal to 7%. If Jenna sells the bond at the end of the year when the market price is $917, what would be the bond's yield to maturity? What return would she earn? What portion of the return represents capital gains and what portion represents the current yield?

Suppose that James just bought the same 15-year bond that Jenna bought and at the same time. If James sells his bond five years from the day he purchased it (with 10 years remaining to maturity) for $1,074, what would be the bond's yield to maturity when he sells it? What return would he earn during the time he held the bond? What portion of the return represents capital gains and what portion represents the current yield?

D m F G H KEY OUTPUTS: 14 9% 2 10% $1,000 Current price (P) Capital gains yield this year Current yield this year Total yield this year B. 11 12 Questions 1-3 13 14 INPUT DATA: 15 16 Years remaining to maturity 17 Coupon rate of interest 18 Interest payments per year 19 Market rate (yield to maturity), 20 Maturity value 21 22 23 MODEL-GENERATED DATA: 24 Years to Beginning of 25 Maturity Year Value (5) 26 20 27 19 28 18 COOH INSTRUCTIONS $925.51 0.28% 9.72% 10.01% End of Year Capital Gains Capital Gains Value (5) ($) Yield (%) Interest ($) Current Yield Total Yield (%) (%) Type here to search RI 10/2/2 91 D E F G H B 18 17 16 15 14 $925.51 13 $928.12 12 $931.01 11 $934.18 10 $937.69 9 $941.55 8 $945.81 7 $950.51 6 $955.68 5 $961.39 4 $967.68 3 $974.62 2 $982.27 1 $990.70 $1,000.00 INSTRUCTIONS $928.12 $931.01 $934.18 $937.69 $941.55 $945.81 $950.51 $955.68 $961.39 $967.68 $974.62 $982.27 $990.70 $1,000.00 $2.61 $2.89 $3.17 $3.51 $3.86 $4.26 $4.70 $5.17 $5.71 $6.29 $6.94 $7.65 $8.43 $9.30 0.28% 0.31% 0.34% 0.38% 0.41% 0.45% 0.50% 0.54% 0.60% 0.65% 0.72% 0.78% 0.86% 0.94% $90 $90 $90 $90 $90 $90 $90 $90 $90 $90 $90 $90 $90 $90 9.72% 9.70% 9.67% 9.63% 9.60% 9.56% 9.52% 9.47% 9.42% 9.36% 9.30% 9.23% 9.16% 9.08% 10.01% 10.01% 10.01% 10.01% 10.01% 10.01% 10.01% 10.01% 10.01% 10.02% 10.02% 10.02% 10.02% 10.02% ONWA C06 GRAPH B D E F H 46 0 $1,000.00 7 48 Quostions 4-5 19 50 INPUT DATA: KEY OUTPUTS: 51 52 Original maturity (years) 15 Yields to new investor (buyer): 53 Coupon rate of interest 9% Yield to maturity.rd 9.00% 54 Interest payments per year 2 Market price one year after sale $1,000.00 55 Maturity value $1,000 Dollar capital gains next year $0.00 56 Market rate, YTM 10.00% Capital gains yield next year 0.00% 57 Purchase price $923.14 Current yield next year 9.00% 8 Selling price $1.000.00 Total yield next year 9.00% 9 Number of years held 3 0 Yields to the original investor (Assumes the market rate, YTM, remains the same each year the bond is held as when the 1 bond was purchased, except in the final year.) 2 # Years Bond Beginning of End of Year Capital Gains Capital Gains Current Yield Total Yield COS GRAPH INSTRUCTIONS Type here to search BI B c D E F G H J K 20.0% 15.0% 10.0% Capital Gains Yield 5.0% Current Yield 0.0% 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -5.0% -10,0% 2 3. 4 5 CFIN4 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole 3 or in part 7 8 9 C06 GRAH INSTRUCTIONS eady 9 D E F G H B 18 17 16 15 14 $925.51 13 $928.12 12 $931.01 11 $934.18 10 $937.69 9 $941.55 8 $945.81 7 $950.51 6 $955.68 5 $961.39 4 $967.68 3 $974.62 2 $982.27 1 $990.70 $1,000.00 INSTRUCTIONS $928.12 $931.01 $934.18 $937.69 $941.55 $945.81 $950.51 $955.68 $961.39 $967.68 $974.62 $982.27 $990.70 $1,000.00 $2.61 $2.89 $3.17 $3.51 $3.86 $4.26 $4.70 $5.17 $5.71 $6.29 $6.94 $7.65 $8.43 $9.30 0.28% 0.31% 0.34% 0.38% 0.41% 0.45% 0.50% 0.54% 0.60% 0.65% 0.72% 0.78% 0.86% 0.94% $90 $90 $90 $90 $90 $90 $90 $90 $90 $90 $90 $90 $90 $90 9.72% 9.70% 9.67% 9.63% 9.60% 9.56% 9.52% 9.47% 9.42% 9.36% 9.30% 9.23% 9.16% 9.08% 10.01% 10.01% 10.01% 10.01% 10.01% 10.01% 10.01% 10.01% 10.01% 10.02% 10.02% 10.02% 10.02% 10.02% ONWAO C06 GRAT D E B $1,000.00 F H 0 48 Questions 4-5 50 INPUT DATA: KEY OUTPUTS: 51 52 Original maturity (years) 15 Yields to new investor (buyer): 53 Coupon rate of interest 9% Yield to maturity.rd 9.00% 54 Interest payments per year 2 Market price one year after sale $1,000.00 55 Maturity value $1,000 Dollar capital gains next year $0.00 56 Market rate, YTM 10.00% Capital gains yield next year 0.00% 57 Purchase price $923.14 Current yield next year 9.00% 8 Selling price $1.000.00 Total yield next year 9.00% 9 Number of years held 3 0 Yields to the original investor (Assumes the market rate, YTM, remains the same each year the bond is held as when the 1 bond was purchased, except in the final year.) 2 # Years Bond Beginning of End of Year Capital Gains Capital Gains Current Yield Total Yield COS GRAH INSTRUCTIONS Type here to search BI