Consider a 12-year, 12 percent annual coupon bond with a required return of 10 percent. The bond

Question:

Consider a 12-year, 12 percent annual coupon bond with a required return of 10 percent. The bond has a face value of $1,000.

a. What is the price of the bond?

b. If interest rates rise to 11 percent, what is the price of the bond?

c. What has been the percentage change in price?

d. Repeat parts (a), (b), and (c) for a 16-year bond.

e. What do the respective changes in bond prices indicate?

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...

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