Sources of Capital & Bond Valuation Q. -- Intro to College FInance

A $1,000 par value bond has a 8 percent coupon, which is paid on a semiannual basis. It matures in either 1 year or 20 years. Current yields on similar bonds are either 6 percent or 10 percent.

a.	Calculate the price of the bond for the four possibilities.

Price of the bond
1 year	6 percent	$
1 year	10 percent	$
20 years	10 percent	$
20 years	6 percent	$

b.	What is the relationship between price and yield? (choose one of the two choices to fill in the blank)

Price and yield are Inversely/directly related.

c.	What is the relationship between bond price changes and time to maturity? (choose one of the two option for the blank)

Bond prices change __more for longer terms/ less for longer terms for a given yield change.