Sipho Just Purchased a Corporate Bond That Matures in Three

Sipho just purchased a corporate bond that matures in three years.The bond has a coupon interest rate equal to 9 percent and its yield to maturity is 6 percent.If market conditions do not change-that is market interest rates remain constant-and Sipho sells the bond in 12 months, what will be his capital gain from holding the bond?

A) Positive; because he bought the bond for a discount, which means its price has to increase as the maturity date nears.
B) Negative; because he bought the bond for a premium, which means its price has to decrease as the maturity date nears.
C) Zero, because he must have bought the bond for par, which means its price will not change as the maturity date nears.
D) This question cannot be answered, because the face (maturity) value of the bond is not given.
E) None of the above is correct.