CFIN6
Chapter 6 Spreadsheet Problem
Bond Valuation
The problem requires you to use File C06 on the computer problem spreadsheet.
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.
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.
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?
