Final answer:
A capital gain or loss on a bond is measured by the difference between the bond's sale price and its original purchase price, not the coupon rate, maturity value, or the current market interest rate.
Step-by-step explanation:
An investor who purchases a bond at a price above the par value and later sells it will experience a capital gain or loss that is measured by comparing the sale price of the bond to the original purchase price. This determines how much the investor has gained or lost in the period they held the bond. It does not relate to the coupon rate, maturity value, or the current market interest rate, although these factors might influence the bond's market price at the time of sale.
When market interest rates fluctuate, the present value of the bond also fluctuates. If market rates rise above the bond's coupon rate, the bond's price tends to fall, and if market rates fall below the bond's coupon rate, the bond's price tends to rise. However, the capital gain or loss itself is based on the price difference between the bond's purchase and its sale.