Question

Bond A has the following features: Face value = $1,000, Coupon Rate = 5%, Maturity = 9 years, Yearly coupons The market interest rate is 7.92% If interest rates remain at 7.92%, what is the percentage capital gain or loss on bond A if you sell the bond in year 1? State your answer to 2 decimal places (e.g., 3.56, 0.29) If there is a capital loss make sure to include a negative sign in your answer (e.g., -0.23).

Answer 1

  

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Value of Bond today =   

Where r is the discounting rate of a compounding period i.e. 0.0792

And n is the no of Compounding periods 9 years

Coupon 5%

=

= 816.98

Value of Bond after a year =   

Where r is the discounting rate of a compounding period i.e. 0.0792

And n is the no of Compounding periods 8 years

Coupon 5%

=

= 831.69

% Change = 831.69 - 816.98 / 816.98 = 1.80%

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