In: Finance
Pelzer Printing Inc. has bonds outstanding with 9 years left to
maturity. The bonds have a...
Pelzer Printing Inc. has bonds outstanding with 9 years left to
maturity. The bonds have a 9% 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 $910.30. The
capital gains yield last year was -8.97%
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 6 for the definition of the current yield and to
Table 7.1.) Do not round intermediate calculations. Round your
answer to two decimal places.
For the coming year, what is the expected capital gains yield?
(Hint: Refer to Footnote 6 for the definition of the current yield
and to Table 7.1.) Do not round intermediate calculations. Round
your answer to two decimal places.
Will the actual realized yields be equal to the expected yields
if interest rates change? If not, how will they differ?
- 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.
- 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.
- 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.
- 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.
- 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.