Consider the following three bonds with $1,000 face value: Bond A: 10-year, 10 percent coupon bond Bond

Question:

Consider the following three bonds with $1,000 face value:

Bond A: 10-year, 10 percent coupon bond

Bond B: 10-year, zero-coupon bond

Bond C: 20-year, 10 percent coupon bond

Compute the market values of each of the three bonds when the market interest rate varies from 0 to 14 percent. What is your interpretation of the decreasing relationship between bond market prices and interest rates?

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...