Question: 1. Why do bond prices go down when interest rates go up? 2. Consider an 8% coupon bond selling for $953.10 with 3 years

1. Why do bond prices go down when interest rates go up?

1. Why do bond prices go down when interest rates go up? 2. Consider an 8% coupon bond selling for $953.10 with 3 years until maturity making annual coupon payments. The interest rates in the next 3 years will be, with certainty, r =8%, r2=10%, and r3 = 12%. Calculate the yield to maturity and realised compound yield of the bond. 3. The following is a list of prices for zero-coupon bonds of various maturities. Calculate the yields to maturity of each bond and the implied sequence of forward rates. Maturity (Years) Bond Price ($) 234 1 2 943.40 898.47 847.62 4 792.16

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