One bond has a coupon rate of 5.8%, another a coupon rate of 8.4%.Bth bonds pay

Question

One bond has a coupon rate of 5.8%, another a coupon rate of 8.4%.Bth bonds pay interest annually, have 9year maturities, and sell at a yield to maturity of 7.0% a. If their yields to maturity nest year are still 7.0%, what is the rate of return on each bond?
b. Does the higher coupon bond give a higher rate of return over this period? One bond has a coupon rate of 5.8%, another a coupon rate of 8.4%.Bth bonds pay interest annually, have 9year maturities, and sell at a yield to maturity of 7.0% a. If their yields to maturity nest year are still 7.0%, what is the rate of return on each bond?
b. Does the higher coupon bond give a higher rate of return over this period? a. If their yields to maturity nest year are still 7.0%, what is the rate of return on each bond?
b. Does the higher coupon bond give a higher rate of return over this period?

Explanation / Answer

a.rate of return for both the bonds is their coupon rate since both bonds has same period of maturity same interval of interest paymentand both bonds sell at same ytm@7%.

b.no,rate of return overa a bond includes two amounts 1.coupon payment 2.capital gain on bond price.

though bond is giving higher rate of return if it is sold at a very high premium then though coupon amounts are high because of bought at premium the return from such bond will never increase

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