Expected capital gains yield

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Reference no: EM136795

Q. Bond A is a premium bond with a 12 percent coupon. Bond B is a 4 percent coupon bond currently trading at a discount. Both bonds make annual coupon payments, have a YTM of 6 percent, and have six years to maturity.

a. What is the current yield for Bond A and for Bond B?

b. If interest rates remain unchanged, what is the expected capital gains yield, stated as a percentage, over the next year for Bond A and for Bond B?

c. Briefly explain the interrelationship among the answers.

Reference no: EM136795

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