(Answered) Consider a five-year 15 percent annual coupon bond with a

Economics

Consider a five-year, 15 percent annual coupon bond with a face value of $1,000. The bond is trading at a market yield to maturity of 12 percent.

a. What is the price of the bond?

b. If the yield to maturity increases 1 percent, what will be the bond’s new price?

c. Using your answers to parts (a) and (b), what is the percentage change in the bond’s price as a result of the 1 percent increase in interest rates?

d. Repeat parts (b) and (c) assuming a 1 percent decrease in interest rates.

e. What do the differences in your answers indicate about the rate–price relationships of fixed-rate assets?

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