Bond A is a premium bond with a 9 percent coupon. Bond B is a 5 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 6 percent, and have five years to maturity. The face value is $1000 for both bonds.

a) What is the current yield for Bond A? For Bond B?

b) If interest rates remain unchanged, what is the expected capital gains yield over the next year for Bond A? For Bond B?

c) Why is the capital gain yield of the premium bond different from that of the discount bond? Which bond is better in terms of yields?

d) What is the holding period return for each bond, if both bonds are held over the next year and sold at the year ned?