Bond P is a premium bond with a coupon rate of 10 percent. Bond D has a coupon rate of 4 percent and is currently selling at a discount. Both bonds make annual payments, have a YTM of 7 percent,and have 10 years to maturity. What is the current yield for bond P? For bond D? If interest rates remain unchanged, what is the expected capitol gains yield over the next year for bond P? For bond D? Explain your answers and the interrelationships among the various types of yields.

Bond P: Coupon rate Yield to maturity Settlement date Maturity date Face value # of coupons per year Bond D Coupon rate Yield to maturity Settlement date Maturity date Face value # of coupons per year 0% 1/0/00 1/0/00 Date one year from now Output area: Ourrent price of Bond P Price in 1 year Current price of Bond D Price in 1 year Current yield of Bond P Capital gains yield of Bond P WOON Ourrent yield of Bond D Capital gains yield of Bond D All else held constant, premium bonds pay high current income while having price depreciation as maturity nears; discount bonds do not pay high current income but have price appreciation as maturity nears. For either bond, the total return, is still 9%, but this return is distributed differently between current income and capital gains