Will the actual realized yields be equal to expected yields

Assignment Help Financial Management

Reference no: EM131966671

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 $1,000. However, due to changes in interest rates, the bond's market price has fallen to $910.40. The capital gains yield last year was -8.96%.

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. %

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. %

Will the actual realized yields be equal to the expected yields if interest rates change? If not, how will they differ?

A. 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.

B. 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.

C. 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.

D. 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.

E. 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.

Reference no: EM131966671

Questions Cloud

Analyze the countrys customs and practices : Analyze the country's customs and practices while highlighting overall cultural contributions to a global world society using primary and secondary sources.

What return should investors expect to earn on these bonds : What is their nominal yield to maturity? What is their nominal yield to call? What return should investors expect to earn on these bonds?

What issues remain for both movements to address today : What do they have in common? How do the two intersect? What divisions emerged in both? What issues remain for both movements to address today?

What RBA could do to keep inflation at its target rate : Macroeconomics of open economics - discuss how it will affect Australia in the short and long run, and what RBA could do to keep inflation at its target rate

Will the actual realized yields be equal to expected yields : Will the actual realized yields be equal to the expected yields if interest rates change? If not, how will they differ?

How you try to capture the essence of people lives : Death notices appear in the newspaper daily and you will notice how they try to capture the essence of people's lives and provide a summary of their existence.

Benefits associated with high broadband access connections : Research on the benefits associated with high broadband access connections? What do users like most about higher connection speeds and how does it improve

Evidence of association between color and texture : Is there evidence of association between color and texture for these limestones? Explain your answer.

Calculate its net income and cash flow : The signal company has operating income of $600,000. calculate its net income and cash flow.

User Account

All Pages