Question

An insurance company invests in a ₹1,000 face value bond carrying a 7% annual coupon, maturing in 10 years. Market interest rates fall to 5% soon after purchase. The bond is now trading at a premium. What happens if the company sells the bond before maturity in the secondary market?

A It incurs a capital loss
B It earns a capital gain
C It earns no return
D The coupon is adjusted to 5%
E The bond is reissued at a new price
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