a. 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?

b. 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?

PARTS die INPUT DATA: KEY OUTPUTS: Origine `maturity [years) 10 Yield to maturity, Is 7.00% Couponrate of interest nterest payments per year 2 Maturity value $1,000 Purchase price $929.00 Jumber of years held 2 fields to the original investor ( Assumes the current market rate, YTM, remains the same each year the bond is held as when the bond was purchased. except in the final year. 1 # Years Beginning of End of Year Capital Gains Capital Current Yield Total Bond Was Year Value Iti Value (ti Gains Yield Interest ($1 $929.00 $934.11 $5.11 Yield 0.55% $60 6.46% 7.01% $934.11 $939.58 $5.47 0.59% $60 6.42% 7.01%