Question: Problem 2 Consider the following data: The current interest rate (YTM) is 5%, the coupon payment is $100, the Face value of the bond is

Problem 2

Consider the following data: The current interest rate (YTM) is 5%, the coupon payment is $100, the Face value of the bond is $1000, and the bond matures in 10 years.

a. Determine the price of this bond.

b. Determine the current yield on the bond.

Now assume the interest rate (YTM) increases to 10% at the end of the year.

c. Calculate the NEW price of the bond (matures in 9 years-UPDATE N).

d. Determine the rate of capital gain or loss.

e. Determine the Rate of Return on this bond.

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