Question

Click here to read the eBook: Bond Yields Click here to read the eBook: Bonds with Semiannual Coupons CURRENT YIELD, CAPITAL GAINS YIELD, AND YIELD TO MATURITY Pelzer Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have a 8% annual coupon rate and were issued 1 year ago at their par value of$10 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? Do not round intermediate calculations. Round your answer to two decimal places . 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.) Do not round intermediate calculations. Round your answer to two decimal places. b. 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.) Do not round intermediate calculations. 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? I. As long as promised coupon payments are made, the current yield will not change as a resuit of changing interest rates. However, changing rates will cause the price II. 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 11I. 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 r. 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 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 to change and as a result, the realized returm to investors should equal the YTM change and as a result, the realized return to investors should equal the YTM to change and as a result, the realized return to investors should equal the YTM differ from the YTM. change and as a result, the realized return to investors will differ from the YTM