Three investors invest in the same 10-year 8% annual coupon bond. They bought the bond at the same price ($85.503075 for a par value of $100) and at the same time. A is a buy-and-hold investor (hold till maturity), B will sell the bond after four years, and C will sell the bond after seven years

1. After the bond is purchased by the three investors and before the first coupon is received, interest

   rate go up to 11%. Calculate:

   1. What is the change in IOI for each investor? (Hint: Find the difference between the IOI

      under the original YTM and the IOI under the new yield).

   2. What is the capital gain/loss for each investor? (Hint: capital gain/loss= price at sale or maturity

      pricecarrying. Carrying value is the hypothetic price of the bond if the bonds yield remains

      at the initial yield to maturity.)

   3. What is the difference between change in IOI and capital gain/loss for each investor?