10. Interest rate effect (LO10-3) Using Table 10-1, assume interest rates in the market (yield to maturity) are 14 percent for 20 years on a bond paying 10 percent. a. b. What is the price of the bond? Assume five years have passed and interest rates in the market have gone down to 12 percent. Now, using Table 10-2 for 15 years, what is the price of the bond? What would your percentage return be if you bought the bonds when interest rates in the market were 14 percent for 20 years and sold them 5 years later when interest rates were 12 percent? 10-1. Solution: Loan Star Company Calculator Solution: (a) 6 percent yield to maturity N I/Y PV PMT FV 20 6 CPT PV ??? 100 1,000 Answer: $ Current bond price (b) 9 percent yield to maturity N I/Y PV PMT FV 20 9 CPT PV ??? 100 1,000 Answer: $Current bond price (c) 13 percent yield to maturity N I/Y PV PMT FV 20 13 CPT PV ??? 100 1,000