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Components of Bond Returns Bond P is a premium bond with a 10 percent coupon. Bond \(\mathrm{D}\) is a 6 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 8 percent, and have eight years to maturity. What is the current yield for Bond \(\mathrm{P}\) ? 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 interrelationship among the various types of yields

Holding Period Yield The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a 9 percent coupon bond making annual payments for \(\$ 1,150 .\) The bond has 10 years to maturity. What rate of return do you expect to earn on your investment? b. Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? What is the HPY on your investment? Compare this yield to the YTM when you first bought the bond. Why are they different?