Reference no: EM132485361
Pelzer Printing Inc. has bonds outstanding with 24 years left to maturity. The trends have a 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 93%.
Question a. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.
Question b. For the coming year, what are the expected current and capital gains yields? (Hint: Refer to Footnote 6 for the de?nition of the current yield ) Do not round intermediate calculations. Round your answers to two decimal plaoes. Expected current yield: % Expected capital gains yield: %
Question c. Will the actual realized yields be equal to the expected yields if interest rates change? If not, how will they differ?
Point 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.
Point 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 pride to change and as a result, the realized return to investors will differ from the YTM.
Point 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 pride to change and as a result, the realized return to investors should equal the YTM.
Point 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 pride to change and as a result, the realized return to investors should equal the YTM.
Point 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 prioe to change and as a result, the realized return to investors should equal the YTM