Question

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

Answer 1

Answer:

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%.