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. 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?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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.

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?

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