Question: (calculate step by step ) You have bought a bond which carries a coupon rate of 8 percent, has 7 years until maturity and sells

(calculate step by step )

You have bought a bond which carries a coupon rate of 8 percent, has 7 years until maturity and sells at a yield to maturity of 7 percent.

Show your calculations and answer the following questions

  1. 4.1) What coupons do bondholders receive each year?

  2. 4.2) What is the price that you paid for this bond? (Assume annual coupon payments)

  3. 4.3) What will happen to the bond price if the yield to maturity rises to 9 percent? (give

    theoretical and calculation answers)

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