Consider a $1,000 bond with a fixed-rate 10 percent annual coupon (Cpn %) and a maturity (N) of 10 years. The bond currently is trading to a market yield to maturity (YTM) of 10 percent. Complete the following table.

                                                               From Par, $                    From Par, %

N      Cpn %    YTM      Price                Change in Price              Change in Price

10        10%         9%   1,065.04                 65.04                                 6.504%         

10        10%      10% $ 1,000.00                  0                                        0

10        10%      11%                    

Use the information to verify the three principles of interest rate-price relationships for fixed-rate financial assets.

Rule One: Interest rates and prices of fixed-rate financial assets move inversely.

Consider a $1,000 bond with a fixed-rate 10 percent annual coupon (Cpn %) and a maturity (N) of 30 years. The bond currently is trading to a market yield to maturity (YTM) of 10 percent. Complete the following table.

                                                               From Par, $                    From Par, %

N      Cpn %    YTM      Price                Change in Price              Change in Price

30        10%         9%                    

30        10%      10%                    

30        10%      11%                    

Use the information to verify the three principles of interest rate-price relationships for fixed-rate financial assets.

Rule Two: The longer is the maturity of a fixed-income financial asset, the greater is the change in price for a given change in interest rates.

Rule Three: The change in value of longer-term fixed-rate financial assets increases at a decreasing rate.