CURRENT YIELD, CAPITAL GAINS YIELD, AND YIELD TO MATURITY Hooper Printing Inc.

has bonds outstanding with 9 years left to maturity. The bonds have an 8% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond’s market price has fallen to $901 40. The capital gains yield last year was −9 86%.

a. What is the yield to maturity?

b. For the coming year, what are the expected current and capital gains yields? (Hint:

Refer to Footnote 7 for the definition of the current yield and to Table 7.1.)

c. Will the actual realized yields be equal to the expected yields if interest rates change? If not, how will they differ?

AppendixLO1