Components of Bond Returns Bond P is a premium bond with a
coupon rate
of 8.2 percent. Bond D is a discount bond with a coupon rate of 5.9
percent.
Both bonds make annual payments and have a YTM of 7 percent, a par
value
of $1,000, and 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.
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