You are considering buying a bond that will be issued today. It will mature in m=9 years. The annual coupon rate is n=7%. Face value is $1,000. The annual market rate is (n+1)=7+1=8%.

a) What is the capital gains yield at exactly a year before the bond matures, when only one coupon and face value are left to be paid, if the market rate stays the same through the years? Show your work.

b) There is another bond that is being issued today, identical to the bond described above in every aspect, except, it matures in 2m years. Which bond would you buy today, if you knew that the market rate would go down to n% a year from today ? Support your decision with clearly calculated numbers. Show your work.