Final answer:
Selling a bond with a 7% coupon in a market where the interests rates have risen to 7.5% would result in a capital loss, as the bond's market price would be less than its face value.
Step-by-step explanation:
If you own a bond with a 7% coupon and the current market rate for this type of bond is 7.5%, then you would expect to realize a capital loss if you sold the bond at the market price today. This is because when the market interest rates rise, bonds that were issued at lower interest rates sell for less than their face value. Conversely, if market interest rates fall, bonds issued at higher rates sell for more than their face value. The bond issuer would not increase the amount of each interest payment since the coupon rate is fixed. The yield to maturity would not remain constant because it reflects the current market conditions relative to the fixed coupon rate.
The current yield would also be less than the coupon rate when the bond price is higher than par, and vice versa. Therefore, if you purchased the bond at par and interest rates increased, the price of the bond would decrease, leading to a capital loss if you sold it.