A four-year 5.8% coupon bond is selling to yield 7%. The bond pays interest annually. One year

Question:

A four-year 5.8% coupon bond is selling to yield 7%. The bond pays interest annually. One year later, interest rates decrease from 7% to 6.2%.

a. What is the price of the four-year 5.8% coupon bond selling to yield 7%?

b. What is the price of this bond one year later, assuming the yield is unchanged at 7%?

c. What is the price of this bond one year later if instead of the yield's being unchanged, the yield decreases to 6.2%?

d. Complete the following:

Price change attributable to moving to maturity (no change in discount rate)________

Price change attributable to a decrease in the discount rate from 7% to 6.2%________

Total price change___________

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