Sec10assignment Microsoft Word ences Mailings Review View H || ! Heading 11 Heading 2 Heading 3 E,,?? : , Paragraph A?A- "?.ed" 1 No Spac 1 Normal Styles 103 It is now January 1 2008 and you are considering the purchase of an outstanding Puckett Corporation bond that was issued on January 1, 2006 The Puckett bond has a 95% annual coupon and a 30-year original maturity (it matures on December 31, 2037). Interest rates have declined since the bond was issued, and the bond is now selling at 116.575 percent of the par value, or $1,165.75. What is the yield to maturity in 2008 for the Puckett bond? 10-4 In January 2006, the yield on AAA-rated corporate bonds averaged approximately 5% one year later, the yield on these same bonds had climbed to 7% because the Federal Reserve increased interest rates during the year. Assume that IBM issued a 10-year, 5% coupon bond on January 1, 2006 On the same date, Microsoft issued a 20-year, 5% coupon bond. Both bonds pay interest annually. Also assume the market rate on similar- risk bonds was 5% at the time the bonds were issued Compute the market value of each bond at the time of issue. a. b. Compute the market value of each bond one year after issue if the market yield for similar-risk bonds was 7 percent on January 1, 2007 C. Compute the 2006 capital gains yield for each bond d. Compute the total yield for each bond over the 2006 period e. Which bond would have been a better invesfnent at the beginning of 2006 and why? 2