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1. Exploring Finance: Coupon Bonds Coupon Bonds Conceptual Overview: Explore the value of fixed-interest coupon bonds of different terms. This graph shows the value of 10% coupon bonds of different terms across differing market interest rates. Each bond pays INT = $100 at the end of each year and returns M = $1,000 at maturity. For comparison, the blue line depicts the value of a one-year bond. The term of the other bond in years may be changed using the slider. Drag on the graph to change the current market interest rate (rd) at which the bond (orange curve) is evaluated. 15 FYrs INT 2 t=1 (1+rd) M (1+rd) yrs $100 (1+0.100 $1000 T (1+0.100 15 - od Value Bond 3.000 2,500 2,000 1,500 15-Year Bond 1,000,000+..... 1-Year Bond 500 15 20 25 Market Interest Rate (%) Yrs=15 1. What is the value of a 15-year 10% $1,000 coupon bond when the market interest rate is 15%? a. $421 b. $708 C. $1,000 d. $1,519 b 2. What is the value of a 12-year 10% $1,000 bond when the market interest rate is 5%? a. $1,000 b. $1,050 c. $1,443 d. $2,200 3. What is the value of a 10-year 10% $1,000 bond when the market interest rate is 10%? a. $900 b. $975 c. $1,000 d. $1,050 4. For a 10% $1,000 coupon bond, when the market interest rate is greater than 10%, the value of the bond: a. Is unaffected and still equals its par value of $1,000. b. Is less than its par value of $1,000. C. Is greater than its par value of $1,000 d. Cannot determine because it depends on the term of the bond in years. 5. For a 10%, $1,000 coupon bond, a longer term bond (say, 15 years) is: a. less affected by changes in the market rate than a 1-year bond. b. affected the same by changes in the market rate than a 1-year bond. c. more affected by changes in the market rate than a 1-year bond. d. Cannot be determined