Answer:
Capital loss of $257.38
Explanation:
Use the following formula to calculate the capital gain or (loss).
Capital Gains / (Loss) = Current Price - Purchase price
As two year have been passed and we need to calculate the current price of the debenture using the following formula
Use the following formula to calculate the price of the bond
Price of the bond = [ C x ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]
Where
F = Face value = $1,000
C = Periodic coupon payment = 7% x $1,000 = $70
r = Periodic interest rate = 13%
n = Numbers of periods = 15 years - 2years = 13 years
Placing values in the formula
Price of the bond = [ $70 x ( 1 - ( 1 + 13% )^-13 ) / 13% ] + [ $1,000 / ( 1 + 13% )^13 ]
Price of the bond = $538.46 + $204.16 = $742.62
Purchase price = $1,000
Placing values in the capital gain or (loss) formula
Capital Gain / ( Loss ) = $742.62 - $1,000
Capital Gain / ( Loss ) = ($257.38)
