Current yield, capital gains yield, and yield to maturity

Pelzer 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. %

b.For the coming year, what is the expected current yield? 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?

CHOOSE CORRECT ANSWER

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 not cause the price to change and as a result, the realized return to investors should equal the YTM.

II .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.

III .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.

IV .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.

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 should equal the YTM.