Suppose a risk-free bond has a face value of $250,000 with a maturity date four years from

Question:

Suppose a risk-free bond has a of $250,000 with a date four years from now. The bond also gives payments of $8,000 at the end of each of the next four years.
a. What will this bond sell for if the risk-free lending rate in the economy is 4 percent?
b. What will this bond sell for if the risk-free lending rate is 5 percent?
c. What is the relationship between the bond’s price and the level of interest rates in the economy in this exercise?

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... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...