The current yield of the bond is 5%. As its price is $900, the interest earned from the bond is $45. And with a face value of $1000, the rate at which interest is being earned on the bond is 4.5%.
If the interest rates next year are 10%, a bond of face value $1000, would give an interest of $100. For the bond you currently own to give an equal yield, the price of the bond would decrease. If the price of the bond is P, it would have to satisfy the equation 45/P = 0.1 or P is equal to $450.
The price of the bond next year would decrease to $450. The best strategy in this case is to sell the bond at the prevailing price of $900 and use the money earned to buy a higher yielding bond next year.
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