Consider a five-year, 15 percent annual coupon bond with a face value of $1,000. The bond is
Question:
Consider a five-year, 15 percent annual coupon bond with a face value of $1,000. The bond is trading at a rate of 12 percent. (LG 3-4)
a. What is the price of the bond?
b. If the rate of interest increases 1 percent, what will be the bond’s new price?
c. Using your answers to parts
(a) and (b), what is the percentage change in the bond’s price as a result of the 1 percent increase in interest rates?
d. Repeat parts
(b) and
(c) assuming a 1 percent decrease in interest rates.
e. What do the differences in your answers indicate about the price–
interest rate relationships of fixed-rate assets?
LO.1
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Related Book For
Financial Markets And Institutions
ISBN: 9781259919718
7th Edition
Authors: Anthony Saunders, Marcia Cornett
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