One year ago, an investor purchased a 10-year, $1000 par, 8% semiannual coupon bond with an 8% YTM. Now, one year later, interest rates remain unchanged at 8%. If the investor sells the bond today (immediately after receiving the second coupon payment, and with no transaction costs) he will have a capital: A. Gain of $80 B. Loss of $80 C. Gain of $0 D. Gain of $160 Answer is C - but I don’t get it. Surely, investor would have received the coupon payment of $80??!!!
capital gain refers to the price of the bond, if it was issued @ 8% YTM and he sells it when rates are unchanged, chances are he sold it for par. Therefore no cap gain
I think they are referring to capital gain/loss on the sale of the bond.
capital gain is how much the price of the bond would increase by seeing as how yields have not changed from par, price is unchanged and the capital gain would be 0
Yes, but we are talking capital gains, he bought and sold at par.
Alright… thank you!! So if the wording is not “capital gain”, and its “profit” instead - so am I correct to say the investor makes a profit of $80?
yes also you could have said he realized a HPY of 8%
supersharpshooter Wrote: ------------------------------------------------------- > yes > > also you could have said he realized a HPY of 8% thank you again!