Problem:

Gabbys garage issued a bond with a 10-year maturity, a $1,000 par value, a 10 percent coupon rate, and semiannual interest payments. Two years after the bond was issued, the going rate of interest on similar-risk bonds fell to 6 percent. Suppose the market rate stays at this level for the remainder of the bond's life.

Required:

Question: Compute the (a) current yield and (b) capital gains yield that the bond will generate in the third year (year 3) of its life.

Note: Please describe comprehensively and provide step by step solution.