Home / Questions / Jenna bought a bond that was issued by Sherlock Watson Industries SWI three years ago The ...
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 percent, and it matures in 17 years. Interest is paid every six months; the next interest payment is scheduled for six months from today.
a. If the yield on similar risk investments is 11 percent, what is the current market value (price) of the bond?
b. Compute the capital gains yield, current yield, and total yield that Jenna will earn if she holds the bond until it matures. Assume that the market rate does not change from now until maturity.
c. Suppose that Jenna decides she wants to sell the bond seven years from today when 10 years remain until maturity. If the market rate is 8 percent at the time she sells the bond in seven years, for what price will Jenna be able to sell the bond? Compute the capital gains yield, current yield, and total yield that the new investor will earn if he or she holds the bond until it matures 10 years later. Explain why the capital gains yield is negative each year to maturity. Assume that the market rate does not change from the time Jenna sells the bond until it matures.
d. Suppose that Joan just bought a 15-year bond for $913.54. The bond has a coupon rate equal to 7 percent, and interest is paid semiannually. What is the bond’s yield to maturity (YTM)? If Joan holds the bond for the next three years and its YTM does not change during that period, what return will she earn each year? What portion of the annual return represents capital gains and what portion represents the current yield?
e. Suppose that James just bought the same bond that Joan bought, but he bought it two years later for $1,034.55. If James plans to hold his bond for five years and its YTM does not change during that period, what return will he earn each year? What portion of the annual return represents capital gains and what portion represents the current yield?
Apr 02 2020 View more View Less
Analyzing Manufacturing Cost AccountsFire Rock Company manufactures designer paddle boards in a wide variety of sizes and styles. The following incomplete ledger accounts...
Jun 26 2020a. (15 points) Calculate the area bounded by curves y = x2 and x + y -2 = 0 using the double integral b. (15 points) In MotoGP racing, all riders are not allowed to refue...
May 16 2021The two big drivers of outsourcing are A) increased ability to cut R&D expenses and increased ability to avoid the problems of strategic alliances. B) that outsiders ca...
Jun 11 2018What is the policy that involves government changes in spending or taxation that affect the economy?
Jun 09 2021In Exercises 9–18,Using the Fundamental Theorem of Line Integrals In Exercises 9-18, evaluate using the Fundamental Theorem of Line Integrals. Use a computer algebra syst...
Aug 08 2021Management wants to know if there will be a need for short-term financing in February. Essential information is as follows: a. Estimated sales for January and February ar...
Apr 24 2020Organizations that develop and communicate career paths to employees can help employees achieve career goals and, as a result, employees are likely to reciprocate with gr...
Dec 25 20193. Find the angle between vectors and and " aria-describedby="fak" />
Apr 13 2021Governments impose excise taxes on goods that have inelastic demand, such as cigarettes, more often than in other cases Why? >
Apr 27 2020What is the molar volume of N2(g) at STP?
Jun 18 2021