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An investor purchases a nine-year, 7% annual coupon payment bond at a price equal to par value. After the bond is purchased and before the
An investor purchases a nine-year, 7% annual coupon payment bond at a price equal to par value. After the bond is purchased and before the first coupon is received, interest rates increase to 8%. The investor sells the bond after five years. Assume that interest rates remain unchanged at 8% over the five-year holding period.
The capital gain/loss per 100 of par value resulting from the sale of the bond at the end of the five-year holding period is closest to a:
1. loss of 8.45
2. loss of 3.31
3. gain of 2.75
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