The bonds from Tata Steel are premium bonds with a 12% coupon.Rajesh Exports bonds sell at a discount with an 8% coupon.The yield to maturity for both bonds is 10% and have eleven years to maturity.Both bonds make annual payments and interest rates are not expected to change over the year.

Trevor Car has asked Bill Sing to calculate the capital gains yield on both bonds and make a recommendation as to which bond will yield the best gains for the firm.Trevor also wants Bill to explain the relationship between coupon rate, yield to maturity and capital gains yield in his report.