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

A. 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 (Calculate)

2% , 2% ,

2.5% , 2% ,

1.5% , 2% ,

B. 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.