Question
An investor with a 4-year investment horizon purchases a bond that pays coupons annually at a rate of 7%. At the time of purchase, the
An investor with a 4-year investment horizon purchases a bond that pays coupons annually at a rate of 7%. At the time of purchase, the bond has 10 years left to maturity and is selling at 107.3601 per hundred of par, with a YTM of 6%.
After the purchase but before the first coupon payment, interest rates rise to 9%, remaining at this rate through the investment horizon.
What is the investor's capital gain or loss at the end of the investment horizon? Answer with a positive number for a capital gain and answer with a negative number for a capital loss. (show work)
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