7. Bill and Jill are investors who, back on May 30, 1990, decided to invest $10,000 in the following fixed income investments: Bill: A $10,000 10-year bond, redeemable at par, with semi-annual coupons at ja = 10.86%, purchased to yield j2 = 10.86%. The price of the bond is $10,000. Jill: A 10-year GIC (guaranteed investment certificate) paying interest at j2 = 10.86%. After 7 years, Bill decides to sell his bond (with 3 years remaining before maturity) to Jill. The yield on a 3-year bond on May 30, 1997 was ja = 5.23%. Answer the following: (i) What price does Jill pay for the bond? (1 mark) (ii) What is Bill's rate of return? How does it compare with his original expected yield rate? (hint: calculate the IRR of Bill's cashflows. It is best if you use an EXCEL spreadsheet for this part of the question - use the IRR function) (3 marks) (iii) Jill cashes in her 10-year GIC (assume without penalty). She uses part of the money to buy the bond and the rest she invests in a 3-year GIC paying interest at ja = 5.23%. What is Jill's rate of return after 10 years? How does it compare with her original expected yield rate? (hint: calculate the IRR of Jill's cashflows. It is best if you use an EXCEL spreadsheet for this part of the question - use the IRR function) (3 marks) (If you use a spreadsheet, cut and paste your output to the solution for (ii) and (iii)) 7. Bill and Jill are investors who, back on May 30, 1990, decided to invest $10,000 in the following fixed income investments: Bill: A $10,000 10-year bond, redeemable at par, with semi-annual coupons at ja = 10.86%, purchased to yield j2 = 10.86%. The price of the bond is $10,000. Jill: A 10-year GIC (guaranteed investment certificate) paying interest at j2 = 10.86%. After 7 years, Bill decides to sell his bond (with 3 years remaining before maturity) to Jill. The yield on a 3-year bond on May 30, 1997 was ja = 5.23%. Answer the following: (i) What price does Jill pay for the bond? (1 mark) (ii) What is Bill's rate of return? How does it compare with his original expected yield rate? (hint: calculate the IRR of Bill's cashflows. It is best if you use an EXCEL spreadsheet for this part of the question - use the IRR function) (3 marks) (iii) Jill cashes in her 10-year GIC (assume without penalty). She uses part of the money to buy the bond and the rest she invests in a 3-year GIC paying interest at ja = 5.23%. What is Jill's rate of return after 10 years? How does it compare with her original expected yield rate? (hint: calculate the IRR of Jill's cashflows. It is best if you use an EXCEL spreadsheet for this part of the question - use the IRR function) (3 marks) (If you use a spreadsheet, cut and paste your output to the solution for (ii) and (iii))