Question: Bond P is a premium bond with a 10 percent
Bond P is a premium bond with a 10 percent coupon. Bond D is a 4 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 7 percent, and have eight years to maturity. What is the current yield for bond P? For bond D? If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P? For bond D? Explain your answers and the interrelationships among the various types of yields.
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