You own a 8 year bond that has a face value of $20,000 and pays 10% a year in interest, once a year, at the end of the year. Two years after buying it, the interest rate increases to 13%. You do not want to wait 6 more years to get your principle of $12.000 back because you really need the money, so you decide to sell it on the open market. 1. How much can you sell it for? 2. Would it be a capital loss or gain and how much? How much is the capital gain or loss?
You own a 8 year bond that has a face value of $20,000 and pays 10% a year in interest, once a year, at the end of the year. Two years after buying it, the interest rate increases to 13%. You do not want to wait 6 more years to get your principle of $12.000 back because you really need the money, so you decide to sell it on the open market. 1. How much can you sell it for? 2. Would it be a capital loss or gain and how much? How much is the capital gain or loss?
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 4P
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You own a 8 year bond that has a face value of $20,000 and pays 10% a year in interest, once a year, at the end of the year. Two years after buying it, the interest rate increases to 13%. You do not want to wait 6 more years to get your principle of $12.000 back because you really need the money, so you decide to sell it on the open market.
1. How much can you sell it for?
2. Would it be a capital loss or gain and how much? How much is the
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