$9-4$: Bond Yields

$9-6$: Bonds with Semiannual Coupons

Current yield, capital gains yield, and yield to maturity

Hooper Printing Inc. has bonds outstanding with $10$ years left to maturity. The bonds have an $9\%$ annual coupon rate and were issued $1$

year ago at their par value of $$1,000.$ However, due to changes in interest rates, the bond's market price has fallen to $$950\mathrm{.}70.$ The

capital gains yield last year was $-4\mathrm{.}93\%.$

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? $($Hint: Refer to Footnote $7$ for the definition of the current yield and to Table

$7\mathrm{.}1.)$ 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 $7\mathrm{.}1.)$ 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?

I. 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$.$

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 change and 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 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$.$

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