9-4 Bond Yields 9-6 Bonds with Semiannual Coupons Problem 9-11 Current yield, ca
ID: 2790593 • Letter: 9
Question
9-4 Bond Yields 9-6 Bonds with Semiannual Coupons Problem 9-11 Current yield, capital gains yield, and yield to maturity Hooper Printing nc. has bonds outstanding with 19 years left to maturit. The bonds have an 7% annual coupon rate and were issued However, due to changes in interest rates, the bond's market price has fallen to $890.20 The capital gains yield last year was-10 9896 a. What is the yield to maturity? Round your answer to two decimal places. e ago att er rvalue o o b. For the coming year, what is the expected current yield? (Hint: Refer to Footnote 7 for the definition of the current yield and to Table 7.1.) Round your answer to two decimal places. For the coming year, what is the expected capital gains yield? (Hint: Refer to Footnote 7 for the definition of the current yield and to Table 7.1.) Round your answer to two decimal places. c. Will the actual realized yields be equal to the expected yields if interest rates change? If not, how will they differ? I. As long as promised coupon payments are made, the current yield will change as a result of changing interest rates. However, changing rates will cause the price to change As long as promised coupon payments are made the current yield will change as a result of changing interes rates. However, chan ng tes no use price to III. As rates change they will cause the end-of-year price to change and thus the realized capital gains yield to change. As a result, the realized return to investors will differ IV. As long as promised coupon payments are made, the current yield will change as a result of changing interest rates. However, changing rates will cause the price to change V. As long as promised coupon payments are made, the current yield will not change as a result of changing interest rates. However, changing rates will cause the price to and as a result, the realized return to investors should equal the YTM. change and as a result, the realized return to investors should equal the YTM. from the YTM and as a result, the realized return to investors will differ from the YTM. change and as a result, the realized return to investors should equal the YTM. Select-Explanation / Answer
890.20=70/(1+ytm)+70/(1+ytm)^2..........1070/(1+ytm)^19
Hence, ytm=8.1562%
Price next year will be 70/(1+ytm)+70/(1+ytm)^2..........1070/(1+ytm)^18=892.8065
Capital Gains Yield=(892.8065-890.2)/890.2=0.2928%
Current Yield now=70/890.2=7.8634%
Expected Current Yield= 70/892.8065=7.8404%
Option IV
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