Question Two

You have $$10,000$ to invest. Your investment advisor has told you that he$/$she can get you a five$-$year bond with an $8\%$ coupon. The bond has a par value of $$10,000,$ and is priced at par value. However, you are concerned that interest rates might continue to rise. Answer the following questions.

a$.$ If you were to purchase this bond, and interest rates rose to $11\%,$ what would be your potential gain or loss on this investment if held to maturity? $(5$ Marks$)$