Utah State UniversityFINANCE 3200 Bond P is a premium bond with a 10 percent coupon

Utah State UniversityFINANCE 3200

Bond P is a premium bond with a 10 percent coupon. Bond D is a 4 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 7 percent, and have eight 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 (10% Coupon) Bond D (4% Coupon)

N         8                      7                     8                               7

I/Y       7%                   7%                   7%                           7%

PV       $1,179.14        $1,161.68        $820.86           $838.32

PMT     $100                $100                $40                       $40

FV       $1,000            $1,000              $1,000              $1,000