Problem 3 (6 marks)

You observe that The James Company Inc. issued a $10 trillion 7 year bond 5 and a half years

ago. The bond pays its 7 percent coupon semi-annually.

a.

If the current market interest rates are 5.5 percent, what will a bond from the James

Company sell for in the market today?

(4 marks)

b.

What is the current yield on this bond?

(2 marks)

Problem 4 (4 marks)

You bought the James bond from problem 3 when the bond was first issued for a quoted price

of 99.25.

a.

If you sell the bond today, what is the effective annual holding period return that you

earned on your investment?

Show your work and your time line