Suppose that instead of buying the coupon bond, you invested in a fifteen-year zero-coupon bond with a face value of $1000.
a) If the bond originally cost $1010, what was the yield on the bond when you purchased it? A) Between -0.5% and 0% B) Between -1% and -0.5% C) 0.5% or more D) Between 0% and 0.5% E) Less than -1%.
b) Suppose that today (six years later) comparable bonds are yielding 3%, if you sold the bond today, would you have a capital gain or loss? A) Capital Gain > $240 B) Capital Loss > $240 C) Capital Gain < $240 D) No gain or losss E) Capital Loss < $240.