Hooper Printing Inc. has bonds outstanding with 9 years leftto maturity. The bon
ID: 2661728 • Letter: H
Question
Hooper Printing Inc. has bonds outstanding with 9 years leftto maturity. The bonds have an 8 percent annual coupon rateand were issued 1 year ago at their part value of $1,000, but dueto changes in interest rates, the bond's market price has fallen to$901.40. The capital gains yeild last year as -9.86percent. What is the yeild to maturity? For the coming year, what is the expected current yield andthe expected capital gains yield? Will the actual realized yields be equal to the expectedyields if interest rates change? If not, how will theydiffer? Hooper Printing Inc. has bonds outstanding with 9 years leftto maturity. The bonds have an 8 percent annual coupon rateand were issued 1 year ago at their part value of $1,000, but dueto changes in interest rates, the bond's market price has fallen to$901.40. The capital gains yeild last year as -9.86percent. What is the yeild to maturity? For the coming year, what is the expected current yield andthe expected capital gains yield? Will the actual realized yields be equal to the expectedyields if interest rates change? If not, how will theydiffer?Explanation / Answer
8 years
Par Value of the Bond $1,000 Annual Coupon Rate 8% Number of Years to Maturity ( 9 - 1)8 years
Current Market Price of the Bond $901.40 Last year's Capital Gains Yield -9.86% Calculating YTM (Using Ms-Excel "RATE"Function): Number of Periods 8 Annual Coupon Payment ($1,000 * 8%) -$80 Present Value of the Bond $901.40 Future Value (or) Par Value of the Bond -$1,000 Yield to Maturity (RATE) 9.84% Expected Curret Yield = Annual CouponPayment / Current Price of the Bond Expected Current Yield = $80 / $901.40 Expected Current Yield = 0.08875 (or)8.88% Expected Current Yield =8.88% YTM = Expected Current Yield+ Expected Capital Gains Yield 9.84% = 8.88% + Expected Capital GainsYield Expected Capital Gains Yield = [9.84% -8.88%] Expected Capital Gains Yield =0.96%Related Questions
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