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Consider the following information about a coupon bond: Coupon rate: 2% Maturity: 5 years Face value: 100 Market interest rate: 4% You purchased this bond
Consider the following information about a coupon bond:
- Coupon rate: 2%
- Maturity: 5 years
- Face value: 100
- Market interest rate: 4%
You purchased this bond at a price of 100, but interest rates have since changed. Calculate the return on investment on this bond if you were to sell again right now before collecting the first coupon payment. If you had access to a new investment opportunity at 4.2% interest rate, should you hold the bond to maturity, or sell? Justify your answer.
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