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28 August, 15:52

Hooper Printing, Inc. has a bond issue outstanding with 14 years left to maturity. The bond issue has a 7% annual coupon rate and a par value of $1,000, but due to changes in interest rates, each bond's value has fallen to $749.04. The capital gains yield earned by investors over the last year was 25.10%. What is the expected current yield for the next year on this bond issue

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  1. 28 August, 19:04
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    9.35%

    Explanation:

    Annual coupon amount = Coupon rate * Fave value of bond = 7% * 1,000 = $70.

    Expected current yield = Annual coupon amount : Current market price per bond = $70 : $749.04 = 0.0935, or 9.35%.

    Therefore, the expected current yield for the next year on this bond issue is 9.35%.
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