Current yield, capital gains yield, and yield to maturity

Hooper Printing Inc. has bonds outstanding with 19 years left to maturity. The bonds have an 7% 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 $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.

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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.

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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.

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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 not change as a result of changing interest rates. However, changing rates will cause the price to change and as a result,

the realized return to investors should equal the YTM.

Il. 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 and as a result, the

realized return to investors should equal the YTM.

Ill. As long as promised coupon payments are made, the current yield will change as a result of changing interest rates. However, changing rates will not cause the price to change and as a result,

the realized return to investors should equal the YTM.

IV. 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 from the YTM.

V.

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 and as a result, the

realized return to investors will differ from the YTM.

9.4: Bond Vields 9-6: Bonds with Semlannuat Coupons Current vield, copital gains veld, and yield to maturity ehanges in interest rates, the bonds market price has falen to $890.20. The capcal gains vield last year was 10.98s. a. What is the yield to maturity? Round your answer to two decimal ploces. c. Wil the actual realized yields be equal to the expected vields if interevt rates change? if not, heir wal ther olfer? the realized retura to investors should equal the VIM. rewired return to investers should equal the VTM. the realied return to investon should equel the VTM. reaced return to investor will differ from the VTM