Suppose in 2017 you buy two year $1,000 face-value 2% coupon bond for $1,000. In 2018, interest rates increase to 5%. If you decide to sell your bond in 2018, what will be the selling price and one-year rate of return for you?

The bonds will be sold at $971.09

while the return on vestment after a year will be of:  -0,00891

Explanation:

The bonds will be sold at the discounted price of the future cash flow.

C10.000 (1,000 x 2% / 2 payment per year)

time2 (after a year 1 year is left and 2 payment per year)

rate0.025 market rate is 5% annual

PV$19.2742

Maturity   1,000.00

time   2.00

rate  0.025

PV   951.81

PV c$19.2742

PV m  $951.8144

Total$971.0886

Return on investment:

coupon payment + sale proceeds over purchase price

(971.09 + 20)/1000 - 1 = -0,00891 = -0.891%

answer; communities of interest; i believe this is correct, plz check first good luck;