Question: A Treasury bond with $1,000 maturity value has a $70 annual coupon and 5 years left to maturity. What price will the bond sell for

A Treasury bond with $1,000 maturity value has a $70 annual coupon and 5 years left to maturity.

  1. What price will the bond sell for assuming that the 5-year yield to maturity in the market is 4%, 7% and 10% respectively. (Show your calculations)
  2. What would be you answer to part (i) if the bond had 8 years to maturity? (Show your calculations)
  3. What would be your answer to part (i) if the bond had only 10 years to maturity? (Show your calculations)
  4. What does your answer to parts (i) to (iii) tell you about the relationship of bond prices, term to maturity and changes in bond yields

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