Problem 7-10 Current yield, capital gains yield, and yield to maturity Pelzer Printing Inc. has bonds outstanding with 24 years left to maturity. The bonds have an 12% 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 $920.70. The capital gains yield last year was -7.93%. a. What is the yield to maturity? Round your answer to two decimal places. o 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. 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? 1. 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. 11. 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. 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 should equal the YTM. IV. 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. V. 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 -Select- Problem 7-4 Yield to maturity ooooool A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,210, and currently sell at a price of $1,366.91. a. What is their nominal yield to maturity? Round your answer to two decimal places. b. What is their nominal yield to call? Round your answer to two decimal places. c. What return should investors expect to earn on these bonds? 1. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM II. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. III. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. V. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC. IV 0