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In Feb2018, Amazon raised US$3.5bn by issuing 10-year bonds carrying annual coupon of 3.15%. The face value of the bond is $1000 and the coupon

In Feb2018, Amazon raised US$3.5bn by issuing 10-year bonds carrying annual coupon of 3.15%. The face value of the bond is $1000 and the coupon is paid every six months.

i. If the bond yield at the time of issue was 3.5%, what would be the price of the bond at the time of issue? (10 marks)

ii. If the bond yield at the time of issue was 3.0%, what would be the price of the bond at the time of issue? (10 marks)

iii. It is said that the price of a bond is inversely proportional to the prevailing interest rates. Prove this statement by taking the case of the above bond and computing the price of the bond at the above two yields (3.0%, and 3.5%) at maturity. (20 marks)

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