Suppose you purchase a five-year, 15 percent coupon bond (paid annually) that is priced to yield 9

Question:

Suppose you purchase a five-year, 15 percent bond (paid annually) that is priced to yield 9 percent. The of the bond is $1,000.
a. Show that the duration of this bond is equal to four years.
b. Show that if interest rates rise to 10 percent within the next year and your investment horizon is four years from today, you will still earn a 9 percent yield on your investment.
c. Show that a 9 percent yield also will be earned if interest rates fall next year to 8 percent. Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...