You are pricing a bond with a coupon rate of 2 %, par value of $1000, and 4 years remaining to maturity.

Calculate its price under 3 scenarios based on the discount rate applied in the market being 2%, 2.5%, and 1.5% (show your calculations), and form the table below.

Market Rate of Discount Coupon Rate Price of a 7 % coupon Bond

2% 2%

2.5% 2%

1.5% 2%

Explain what the table that you have formed above shows in terms of the bond price behavior with respect to changes in interest rates in the market