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Consider a coupon bond with a 10% coupon rate. The initial price of the bond is $1,000. The face value is $1,000. You decide to
Consider a coupon bond with a 10% coupon rate. The initial price of the bond is $1,000. The face value is $1,000. You decide to sell your bond after holding it for one year and receiving the first coupon payment. During your holding period the interest rates have increased from 10% to 15%. Answer the following questions and show your work: a) Calculate the market price of your bond if three years were left until maturity when you bought this bond. b) Calculate the market price of your bond if four years were left until maturity when you bought this bond. c) Describe what will happen to the price of the bond as years left to maturity increase. d) Will you incur a capital loss or a capital gain in cases (a) and (b). Calculate and show your work
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