An investor buys a 20-year bond with a 7% coupon rate paid semiannually that is priced such that the yield-to-maturity is 9.42%. After the bond is purchased and before the first coupon is received, interest rates increase to 10.5%. Two years later the investor sells the bond. All coupons received over the two-year holding period were reinvested at 10.5% and interest rates remain unchanged at 10.50% the time of the sale.

a.What is the capital gain (loss) per 100 of par? (1 point)

b.What is the horizon yield over the two-year holding period? (2 points)