Just so there is no misunderstanding – if you buy a $1000 10-year bond @ 3.5% and hold it to maturity, you will collect $350 in interest over 10 years and then you’ll get your $1000 back, and it does not matter in the slightest what happens to 10-year rates.
Furthermore, if you buy a 10-year bond now and then sell it 5 years from now, and invest the proceeds into a 5-year bond at whatever the interest rate is in 2015, by 2020 you will still have $1350, give or take a few dollars.
First paragraph is correct, but the second paragraph isnt. The selling price has to be ‘discounted’ by the difference between the bonds yield and current risk free rate of return.
