Problem 10-10 Interest rate effect [L010-3] Refer to Table 10-1, assume interest rates in the market (yield to maturity) are 4 percent for 20 years on a bond paying 10 percent a. What is the price of the bond? Bond price $ 1,815.42 b. Assume 15 years have passed and interest rates in the market have gone up to 12 percent. Now, using Table 10-2 for 5 years, what is the price of the bond? Bond price c. What would your percentage return be if you bought the bonds when interest rates in the market were 4 percent for 20 years and sold them 15 years later when interest rates were 12 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Return on investment % Loss Table 10-1 Bond price table Yield to Maturity 2% 4% 6% 796 896 99% 10% 11% 12% 13% 14% 16% 20% 25% (10% Interest Payment, 20 Years to Maturity) PV of PV of Coupons Principal $1,635.14 $672.97 1,359.03 456.39 1,146.99 311.80 1,059.40 258.42 981.81 214.55 912.85 178.43 851.36 148.64 796.33 124.03 746.94 103.67 702.48 86.78 662.31 72.76 592.88 51.39 486.96 26.08 395.39 11.53 III 11 I 1 1 1 1 1 1 Bond Price $2,308.11 1,815.42 1,458.80 1,317.82 1,196.36 1,091.29 1,000.00 920.37 850.61 789.26 735.07 644.27 513.04 406.92