Question
Bond P is a premium bond with a 12 percent coupon. Bond D is a 6 percent coupon bond currently selling at a discount. Both
Bond P is a premium bond with a 12 percent coupon. Bond D is a 6 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 9 percent, and have five years to maturity (assuming $1000 for the par value of both bonds) a) What is the current yield for bond P? and for bond D? b) If the YTM remain unchanged, what is the expected capital gains yield over the coming year for bond P? and for bond D? c) If the YTM changes to 10% by the year end, what would be the current yield for bond P and for bond D? And what would be the expected capital gains yield over the coming year for bond P and for bond D?
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