Bond A is a 12-year 7% annual coupon bond. Bond B is a 12-year 9% annual coupon bond. Bond C is a 12-year 11% annual coupon bond. Each of these three bonds has a yield to maturity (YTM) of 9%. Assume the market rate of interest does not change over time.

1.Specify which bond sells at premium, which sells at discount, and which sells at par.

2.What is value of each bond at t=0?

3.What would be the price of each bond 1 year from now?

4.Is the expected total return earned on Bond A the same as the expected total return earned on Bond C? Explain.

5.If the capital gains yield (CGY) earned on Bond A greater than the CGY on Bond C? Explain.