Bond P is a premium bond with a coupon rate of 12 percent. Bond D has a coupon rate of 7 percent and is currently selling at a discount. Both bonds make annual payments, have a YTM of 9 percent, and have seven years to maturity.

What is the current yield for bond P and bond D? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

	Current yield
Bond P	%
Bond D	%

If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P and bond D? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

	Capital gains yield
Bond P	%
Bond D	%

ANSWER IS NOT:

"Current yield of Bond P:

Assume bonds having face value of $1000,

Price of the bond should be calculated to calculate current yield and capital gains yield

The current price of Bond P in one year is:

P0= $120(PVIFA9%,5) + $1,000(PVIF9%,5) = $1,116.69

P1= $120(PVIFA9%,4) + $1,000(PVIF9%,4) =$1,097.19

Current yield = $120 / $1,116.69 = .1075 or 10.75%

The capital gains yield is:

Capital gains yield = (New price Original price) / Original price

Capital gains yield of Bond P:

Capital gains yield = ($1,097.19 1,111.69) / $1,116.69 = .0175 or 1.75%

Current yield of Bond D:

The current price of Bond D and the price of Bond D in one year is:D:

P0= $70(PVIFA9%,5) + $1,000(PVIF9%,5) = $887.27

P1= $70(PVIFA9%,4) + $1,000(PVIF9%,4) = $934.78

Current yield = $70 / $887.27 = .0788 or 7.89%

Capital gains yield of Bond D:

Capital gains yield = ($934.78 887.27) / $887.27 = +.0535 or +5.35%."