A $1000, 7% coupon bond has 15 years remaining until maturity. The rate of return required by

Question:

A $1000, 7% bond has 15 years remaining until maturity. The rate of return required by the market on these bonds has recently been 7% (compounded semiannually). Calculate the price change if the required return abruptly:
a. Rises to 8%.
b. Rises to 9%.
c. Falls to 6%.
d. Falls to 5%.
e. Is the price change caused by a 2% interest rate increase twice the price change caused by a 1% interest rate increase?
f. Compare the magnitude of the price change caused by a 1% interest rate increase to the price change caused by a 1% interest rate decrease.
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...