2. A bond that matures in 12 years has a $1,000 par value. Its coupon rate is 8 percent, and makes annual payments. The market's required yield to maturity on a comparable-risk bond is 12 percent. Please show that if the market required yield to maturity stays constant at 12 percent next year, purchasing this bond at today's value and selling it at then market value one year from today indeed provides you with the 12 percent return as expected. Hint: to do this, you need to calculate the current yield and capital gains/losses.

A bond that matures in 12 years has a $1,000 par value. Its coupon rate is 8 percent, and makes annual payments. The market's required yield to maturity on a comparable-risk bond is 12 percent. Please show that if the market required yield to maturity stays constant at 12 percent next year, purchasing this bond at today's value and selling it at then market value one year from today indeed provides you with the 12 percent return as expected. Hint: to do this, you need to calculate the current yield and capital gains/losses