Answer:
[tex]1,000(1+n) - \frac{1,000(1+n)}{1+n_1} = $Capital Gain[/tex]
Explanation:
the capital gain will be the difference bewtween the discounted coupon payment and maturity:
being maturity 1,000 and coupon payment 1,000 x n
the casflow to discount will be 1,000(1+n)
This will be discounted at the market rate n1
Leading to the following expression:
[tex]PV = \frac{1,000(1+n)}{1+n_1}[/tex]
The capital gain is the difference between this expression and the 1,000(1+n) we received at the end of the life:
[tex]1,000(1+n) - \frac{1,000(1+n)}{1+n_1} = $Capital Gain[/tex]
