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Bond XI is a premium bond with a 14% coupon. Bond 2 is a 7% coupon bond currently selling at a discount. Both bonds make
Bond XI is a premium bond with a 14% coupon. Bond 2 is a 7% coupon bond currently selling at a discount. Both bonds make annual payments, have a YIM of 8.5%, and have seven years to maturity. 8. a. If interest rates remain unchanged, what are the bond prices this year and next year? (10 points) b. What is the current yield for the bonds this year? (5 points) c. What are the expected capital gains yields over the next year for both bonds? (5 points) d. Explain the interrelationships among current yields, capital gains yields, and YTM based on the previous part findings. (5 points)
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