1. Bond P is a premium bond with a coupon rate of 8.2%. Bond D is a discount bond with a coupon rate of 5.9%. Both bonds make annual payments and have a YTM of 7%, a par value of $1000, and five years to maturity. What is the current yield for Bond P and Bond D? If interest rates remain unchained, what is the expected capital gains yield over the next year for Bond P and Bond D? Explain your answer and the interrelationships among the various types of yields.

2. Suppose you buy an annual coupon bond with a coupon rate of 6% for $915. The bond has 10 years to maturity and a par value of $1000. What rate of return do you expect to ern on your investment? Two years from now the YTM on your bond has declined by one percentage point, and you decide to sell. What is the holding period yield on your investment? Compare this yield to the YTM when you first bought the bond. Why are they different?