Question: 3. Bond D is a discount bond with a 5 percent coupon. The bond makes annual interest payments, has a YTM of 7 percent, and

3. Bond D is a discount bond with a 5 percent coupon. The bond makes annual interest payments, has a YTM of 7 percent, and has 10 years to maturity. a. What is the current price and current yield for Bond D? b. Based on the bond's YTM and your answer for (a), what is the expected capital gains yield (CGY) over the next year for Bond D if interest rates remain unchanged? c. Calculate the bond price one year from now assuming that the interest rate remains unchanged at 7%? d. Use the price you obtain one year from now along with the current price to check your capital gains yield answer in (b). e. If you sell the bond at the price obtained in part c, what is your realized holding period return? f. What is the expected current yield of the bond one year from now at the price in (c)? What is the expected capital gains yield over the year after next year at that price? g. Calculate the bond price five years from now assuming that the interest rate remains unchanged at 7%. What is the expected current yield and expected capital gains yield? h. Based on your answers to all of the above, what happens to a discount bonfi's current yield and capital gains yield if market interest rates remain unchanged as the bond heads for maturity? i. Referring back to part a, what is your holding period return if in one year market interest rates decrease to 5 percent and you decide to sell the bond

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