Compute the capital gains yield that jenna will earn

Assignment Help Financial Management

Reference no: EM131961159

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?

Reference no: EM131961159

Questions Cloud

Given the required return what is the value of the stock : Jersey Jewel Mining has a beta coefficient of 1.2. Currently the risk-free rate is 2 percent and the anticipated return on the market is 8 percent.

Compare justice system of a foreign country with that of us : Write a 4 pages paper that addresses the following: Compare and contrast the justice system of a foreign country with that of the United States.

Explain the role of employee counseling : Topic for Discussion: Explain the role of employee counseling and wellness in organizations.

What is the most he should pay to purchase this payment : If his opportunity cost is 6% compounded annually, what value should he place on this opportunity today?

Compute the capital gains yield that jenna will earn : Compute the capital gains yield, current yield, and total yield that Jenna will earn if she holds the bond until it matures.

Performance management in organizations : Analyzing the role of coaching and performance management in organizations.

Can you make the decision of the investment : If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of 5% per year for any horizon.

Recognition for contributions : Have you ever worked at a company where you have received recognition for your contributions? Was the recognition one that you appreciated or did if fall flat?

What caused the dramatic changes to the american family : Describe the differences in marriage and family life that are linked to class, race, gender, and personal choice.

User Account

All Pages