Steven and Kerry have recently had their first child (Lilly) and are on the lookout for a larger house in which to raise their family. They currently live in a 2- bedroom flat near the centre of Edinburgh and are paying approximately 600 per month on their mortgage. They are now looking for a property on the outskirts of the city as it will be more peaceful there for the benefit of Lilly (and any other children they may have in the future). They have viewed a 3-bedroom house with an asking price of 400,000 and the valuation survey on the property (this was a requirement by the mortgage lender) has valued it at 375,000. Their mortgage company have agreed to lend them 75% of the property value, the rest will need to be paid by Steven and Kerry. They will also need to pay Land and Building Transaction Tax (LBTT) on the property, and the legal fees will be 1.10% of the purchase price. They will also need to pay around 1,500 in moving fees to take all their furniture and other belongings to their new house. Steven earns 45,000 a year working at a local school and Kerry currently earns 38,000 as a freelance designer in the city. They opened a joint current account at their local bank when they married three years ago, although the current interest rate on any balance is 0%. However, last year Kerry earned 25 interest from a savings account she has on her own. Kerry also owns 8,200 ordinary shares in an Investment Trust and these are currently trading at 4.80 each (which she bought five years ago at 2.00 each). She earned 1,127.50 in dividends from these shares last year. Steven also owns some shares in a local football club that he has supported since he was a child. He thinks they are only worth a few hundred pounds and they have never paid out any dividends. Steven has always kept them for sentimental reasons, rather than as a serious investment, and now that he and Kerry have a family to think about he wonders if he should perhaps sell these shares. Recently Kerrys mother was diagnosed with cancer, something that seems rather common in her family, and she is concerned that this might be hereditary and she may succumb to an early death. While Steven should be able to survive on his decent enough salary, Kerry is concerned that if anything should happen to her he would struggle to pay off the mortgage on their new house, or be able to look after their children properly. She is therefore considering taking out a Permanent Health Insurance (PHI) policy. After talking this over they both realise that they have no life or health insurance at all and have done virtually nothing by way of general financial planning. They both agree that they need more protection, starting with insuring each others lives just in case something unexpected should happen to one of them. Steven also suggests that they take out life insurance on his mother and Lilly as well. Steven and Kerry both have their own cars (to allow them each to drive to work every day). They like to go hill-walking and mountaineering in the Scottish mountains, particularly in the winter-time when there is snow on the hills. Kerry also owns some valuable art and design pieces that she has collected over many years through her work contacts. She doesnt think that any of these issues would need to be mentioned on any insurance proposal form. In January this year, Kerry bought 18,000 nominal of 3.75% Treasury stock, redeemable in 2040. The price of this stock is now 131.50 per 100 nominal.

7. Advise Kerry whether it is better to sell the 3.75% Treasury stock 2040 or keep it until the redemption date. What are the net interest yield on the stock and the net redemption yield on the stock? In addition, how much did each of Kerrys Investment Trust shares pay out in dividends last year (in pence), and what is the current dividend yield on these shares?