Bond P is a premium bond with a 9 percent coupon. Bond D is a 4 percent coupon b
ID: 2708506 • Letter: B
Question
Bond P is a premium bond with a 9 percent coupon. Bond D is a 4 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 6 percent, and have nine years to maturity.
What is the current yield for bond P and bond D?
If interest rates remain unchanged, what is the expected capital gains yield over the next year for bond P and bond D?
Bond P is a premium bond with a 9 percent coupon. Bond D is a 4 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 6 percent, and have nine years to maturity.
Explanation / Answer
Capital gains yield Bond P% -1.48% Bond D% 1.38%
Current yield Bond P 7.47% Bond D 4.63%