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(a) A 10-year bond was issued two years ago with a face value of $1,000 and an annual coupon rate (interest rate) of 6%. Two
(a) A 10-year bond was issued two years ago with a face value of $1,000 and an annual coupon rate (interest rate) of 6%. Two years later, what is the market value of the bond if the market interest rate is 9.2%? Assume that the second coupon amount was just made. Please draw a cash flow diagram (5 points) to support your calculation and analysis (5 points) (b) Determine the market value of a 20-year $1,000 bond with 6% annual coupon rate (interest rate) two years after issue when the market rate of interest for 18-year bonds is 9.2% Please draw a cash flow diagram (5 points) to support your calculation and analysis (5 points) (c) Does the higher interest rate today versus two years ago increase or decrease the face value of the bond (5 points)? Is the impact of changing interest on the market value of the bond greater or less for increasing term (from 10-year to 20-year)? (5 points)
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