Question

rates. the bend's market price has fallen to $810.40. The capital gains vield last year was −18.96%6. a. What is the yield to maturity? Do not reund intermed ate calculations. Rousd yeor answer to two decimal places. Round your answers to two decimal places. Expected current yield: Expected capital gains yield: c. Will the actual realized yields be equal to the expected yields if interest rates change? If not, how wil they differ? the realized return to investors will differ from the YTM. As iong as promised coupon payments are made, realized return to imestors should equal the YTM. As long as promised coupon payments are mode, the the realized return to imvestors should equal the rTM. Aesult, the realired return to imvestors should equal the YTM.

Answer 1

Without specific details such as the coupon rate and time to maturity, it's not possible to calculate the yield to maturity (YTM) for the bond in question. Expected yields may differ from actual realized yields due to changes in interest rates, affecting bond prices inversely. The realized return can vary from the YTM, despite the issuer fulfilling coupon payment obligations.

Step-by-step explanation:

To calculate the yield to maturity (YTM) of a bond, we assess the total returns expected on the bond if it is held until it matures. Typically, this includes interest or coupon payments plus any capital gains or losses if the bond is bought for less or more than its face value. If the bond's market price has fallen to $810.40 and the capital gains yield last year was -18.96%, then we have insufficient information to calculate the YTM here as we need more details such as the coupon rate and the remaining time to maturity.

The current yield is the annual interest payment divided by the current bond price. The capital gains yield would be the change in bond price over the holding period divided by the initial price paid. Expected yields may not be equal to realized yields if interest rates change, because bond prices are inversely related to interest rate movements. If rates go up, new bonds pay higher interest, making existing bonds with lower rates less valuable; conversely, if rates go down, the value of existing bonds goes up.

Ultimately, the realized return to investors can differ based on interest rate movements, even if the bond issuer makes promised coupon payments.