Question
The price of a bond is inversely proportional to the interest rate prevailing in the marketplace. To illustrate this, suppose you own a 5-year
The price of a bond is inversely proportional to the interest rate prevailing in the marketplace. To illustrate this, suppose you own a 5-year $1,000 bond that pays a coupon of 4% (this means that the bond pays an annual sum equal to 4% of its face value of $1000, for 5 years). Calculate the value of the bond at the following interest rates 3%, 4%, and 5% per annum.
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Macroeconomics
Authors: Glenn Hubbard, Anthony Patrick O'Brien, Matthew P Rafferty
1st Edition
978-0132109994, 0132109999
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