Suppose you bought a thirty-year long-term bond five years ago. The bond pays £10,000 at the end of the year for thirty years and then returns the face value at the end of the thirtieth year. When you bought the bond the market interest rate (yield to maturity) was 10% per year and the face value of the bond is £100,000. You have received the first five-coupon payment, but the market interest has also increased to 13% per year, and you are thinking of selling the bond.

1. What price do you expect to receive?
2. What price would you have received if the market interest rate had fallen to 7% per year?

Answer rating: 100% (QA)

1 What Price The bond Pays 0x000 at the end of the year 10 po... View the full answer