7. Media Inc. has bonds outstanding with 9 years left to maturity. The bonds have an 9% 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

able 7.1 Calculation of Current Yields, Capital Gains Yields, and Total Returns for 7%, 10%, and 13% Coupon Bonds when the Market Rate Remains Constant at 10% 7% Coupon Bond 10% Coupon Bond 13% Coupon Bond Number Pric Expected Expected Expected Price* Expected Expected Expected Price Expected Expected Expected of Years Until Maturitv Current Capital Total Yield Gains Current Capital Total Yield* Gains Current Capital Total Yield*Gains Return* Return* Return* Yield * Yield * Yield* 15 $771.82 9.1% 0.9% 10.0% $1,000.00 10.0% 0.0% 10.0% $1,228.18 10.6% -0.6% 10.0% 14 779.00 9.0 10.0 1,000.00 10.0 10.0 1,221.0010.6 -0.6 10.0 13 786.90 8.9 10.0 1,000.00 10.0 10.0 1,213.10 10.7 -0.7 10.0 12 795.59 8.8 10.0 1,000.00 10.0 10.0 1,204.4110.8 -0.8 10.0 805.15 8.7 10.0 1,000.00 10.0 10.0 1,194.8510.9 -0.9 10.0 10 815.66 8.6 10.0 1,000.00 10.0 10.0 1,184.34 11.0 10.0 827.238.5 10.0 1,000.00 10.0 10.0 1,172.77 11.1 10.0 839.958.3 10.0 1,000.00 10.0 10.0 1,160.05 11.2 10.0 853.958.2 10.0 1,000.00 10.0 10.0 1,146.05 11.3 10.0 869.348.1 10.0 1,000.00 10.0 10.0 1,130.66 11.5 10.0 886.287.9 10.0 1,000.00 10.0 10.0 1,113.72 11.7 10.0 904.90 7.7 10.0 1,000.00 10.0 10.0 1,095.10 11.9 10.0