Question: Suppose that you have a bond with a face value of $1,000 and a coupon rate of 8% for one year and that you buy

Suppose that you have a bond with a face value of $1,000 and a coupon rate of 8% for one year and that you buy another one after one year.

a- What will be your gain if the interest rate increases up to 10%? Compute annual return.

b- How will your answer change if the interest rate falls to 6%? Compute annual return.

c- What conclusion can you draw from these cases?

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