5-year UK government bonds pay interest annually. Calculate its value based on the following information: Redemption date: October 2026. Coupon 1.25 Return by similar securities 1.85% Face value 100

Based on the information above, calculate the following: a) Determine the bond's current value. b) Calculate the value of the bond if the interest rate increases by 0.75%, increasing the return of similar securities to 2.6%. c) Calculate the value of the bond if the interest rates decrease by 0.25%, decreasing the return of similar securities to 1.6 %. d) Explain briefly why bond prices and interest rates are inversely related.

Answer rating: 100% (QA)

Bond Valuation with Changing Interest Rates We can calculate the fair value of the 5year UK governme... View the full answer