Final answer:
Bond A, with a coupon lower than the YTM, will trade at a discount while Bond B, with a higher coupon rate, trades at a premium. Thus, Bond A's capital gains yield is greater than Bond B's, and Bond A will not sell at par nor have a higher current yield than Bond B.
Step-by-step explanation:
Between Bond A with a 9% annual coupon and Bond B with a 10% annual coupon, with all else being equal such as maturity, face value, and yield to maturity (YTM) at 8%, we can determine how these bonds are trading based on interest rates and coupon rates.
Bond A, with a coupon rate lower than the YTM, will trade at a discount because it provides less annual income compared to the YTM. Therefore, the price must be lower to make its yield equal to the market yield of 8%. On the other hand, Bond B, with a coupon rate higher than the YTM, will trade at a premium because it provides more annual income than the YTM. Thus, it will be more valuable to investors and priced above its face value to bring the yield in line with the current market yield.
Given these characteristics, we can conclude that statement b) "Bond A's capital gains yield is greater than Bond B's capital gains yield" is correct. Since Bond A is bought at a discount (below the face value), as it approaches maturity, its value will converge to the face value, resulting in a capital gain. Statement d) is incorrect because Bond B's current yield, which is the annual coupon payment divided by the bond's price, must be lower than Bond A's because Bond B's price is higher due to its trading at a premium.