Problem:
One bond has a coupon rate of 8 percent, another a coupon rate of 12 percent. Both bonds have 10-year maturities and sell at a yield to maturity of 10 percent.
If their yields to maturity next year are still 10 percent, what is the rate of return on each bond? (Show your work proving your answers).
Does the higher coupon bond give a higher rate of return? Why or why not?