a. A $1,000 bond has a 7.5 percent coupon and matures after 10 years. If current interest

Question:

a. A $1,000 bond has a 7.5 percent and matures after 10 years. If current interest rates are 10 percent, what should be the price of the bond?
b. If after six years interest rates are still 10 percent, what should be the price of the bond?
c. Even though interest rates did not change in a and b, why did the price of the bond change?
d. Change the interest rate in a and b to 6 percent and rework your answers. Even though the interest rate is 6 percent in both calculations, why are the bond prices different?
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...