Hooper Printing Inc. has bonds outstanding with 19 years left to maturity. The b
ID: 2679049 • Letter: H
Question
Hooper Printing Inc. has bonds outstanding with 19 years left to maturity. The bonds have an 7% annual coupon rate and were issued one year ago at their par value of $1,000 , but due to changes in interest rates, the bond's market price has fallen to $890.20 The capital gains yield last year was - 10.98%.
a. What is the yield to maturity? Round your answer to two decimal places.
%
b. For the coming year, what is the expected current yield? Round your answer to two decimal places.
%
c. For the coming year, what is the expected capital gains yield? Round your answer to two decimal places.
%
Explanation / Answer
Hooper Printing Inc. has bonds outstanding with 19 years left to maturity. The bonds have an 7% annual coupon rate and were issued one year ago at their par value of $1,000 , but due to changes in interest rates, the bond's market price has fallen to $890.20 The capital gains yield last year was - 10.98%.
a. What is the yield to maturity? Round your answer to two decimal places.
%
As long as promised coupon payment are mdae , the current yield will change as a result of changing interest rates. However rates will not cause the price to change and as a result, the realized return to investors should equal the YTM.
b. For the coming year, what is the expected current yield? Round your answer to two decimal places.
As rates change they will cause the end of year price to change and thus the realized capital gains yield to change. As result the realized return to investors will differ from the YTM,
c. For the coming year, what is the expected capital gains yield? Round your answer to two decimal places.
As long as a promised coupon payment are made , the current yield will change as a result of changing interest rates. However , changing rates will cause the price to change and as as result , the realized return to investors will differ from the YTM.
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