Problem:
With interest rates at historic lows, you decide to invest in high yield corporate bonds. Fly-By-Night Inc., has a new 30 year bond issue that seems attractive. Each bond costs $100 and has a fixed coupon of $10, a yield of 10%. With $1000 in your pocket, you decide to buy 10 of these bonds.
You buy them at original issue and the very next day the yield goes to 20%. What does that mean to your income and to your investment? What does that tell you about the relationship between bond prices and bond yields?