7-9 YIELD TO MATURITY Heymann Company bonds have 4 years left to maturity. Interests paid annually, and the bonds have a $1,000 par value and a coupon rate of 9%. a. What is the yield to maturity at a current market price of (1) $829 and (2) $1,104? b. Would you pay $829 for each bond if you thought that a fair market interest rate for such bonds was 12%that is, if rd. 12%? Explain your answer.

7-10 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 bonds 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?

7-13 PRICE AND YIELD An 8% semiannual coupon bond matures in 5 years. The bond has a face value of $1,000 and a current yield of 8 21%. What are the bonds price and YTM? (Hint: Refer to Footnote 7 for the definition of the current yield and to Table 7.1.)

7-15 BOND VALUATION Bond X is non-callable and has 20 years to maturity, a 9% annual coupon, and a $1,000 par value. Your required return on Bond X is 10%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 8.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.)

7-17 BOND RETURNS Last year Joan purchased a $1,000 face value corporate bond with an 11% annual coupon rate and a 10-year maturity. At the time of the purchase, it had an expected yield to maturity of 9 79%. If Joan sold the bond today for $1,060 49, what rate of return would she have earned for the past year?