Bond P is a premium bond with a coupon

rate of 8.5 percent. Bond D is a discount bond with a coupon rate of 5.5 percent.

Both bonds make annual payments, have a YTM of 7 percent, a par value of

$1,000, and have five years to maturity. What is the current yield for Bond P?

For Bond D? If interest rates remain unchanged, what is the expected capital

gains yield over the next year for Bond P? For Bond D? Explain your answers

and the interrelationships among the various types of yields.