Instructions:

The yield of the $10-$year US Treasury bond is $1\mathrm{.}20\%.$ It is the risk$-$free rate. You work

for investment manager and your boss asks you to calculate the price of a $10-$year

corporate bond that yields $3\mathrm{.}00\%$ more than its risk$-$free rate and has a face value of

$$1,000.$ The fixed coupon of this corporate bond is $5\mathrm{.}00\%.$ Both bonds pay coupons

annually.

$$ What is the current price of the corporate bond?

$$ Calculate the price of the bond if its yield increased by $1\mathrm{.}00\%.$

$$ Calculate the price of the bond if its yield decreased by $1\mathrm{.}00\%.$

$$ Please discuss the risk associated with this change in interest rates?