Assume an investor buys a newly issued 8 percent,semi-annual 10 year bond at par.He sells it two years later,when market interest rates have decreased to 6 percent.How much is the investor's capital gain or loss?

Question

Quizplus · Accepted Answer

The bond's price increases when market interest rates decrease. The investor bought the bond at par ($1,000) and sells it when rates are lower, increasing the bond's price. The bond's price can be calculated using the present value of future cash flows, resulting in a gain of $125.44.

Assume an Investor Buys a Newly Issued 8 Percent,semi-Annual 10