An investor buys a bond with 4% coupon rate and $1,000 face value. Another investor waits a month to buy a bond. During that month the bond issuer raised interest rates to 6%. The second investor buys a bond with 6% coupon rate and $1,000 face value. The frist investor wishes to sell their bond. What is the highest price they can charge for someone to be indifferent between buying it from them and the issuer?
What is the return on a $10,000, 4% coupon bond purchased at par, if you later sell it one year after purchase for $9,875? Show your work.