# Question

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

a. What is the price of the bond?

b. If the rate of interest 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 price– interest rate relationships of fixed- rate assets?

a. What is the price of the bond?

b. If the rate of interest 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 price– interest rate relationships of fixed- rate assets?

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