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Imagine that the market interest rate is equal to 5%. Consider three investors. The first one holds a bond that pays a coupon of
Imagine that the market interest rate is equal to 5%. Consider three investors. The first one holds a bond that pays a coupon of 50 with the face value of 1000 that matures in 5 years, the second holds a bond with a coupon of 50 with the face value of 1000 that matures in 10 years, and the third holds a bond that matures in 30 years and has a coupon of 50 and the face value of 1000. Now, imagine that next period the interest rate raises to 6%. Which of the three investors experiences the highest capital loss?
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