Question: Suppose you are considering purchasing a coupon bond with a coupon rate of 10 percent and a face value of $5,000 that matures in 4

Suppose you are considering purchasing a coupon bond with a coupon rate of 10 percent and a face value of $5,000 that matures in 4 years.

a. How much would you be willing to pay for this bond if the market interest rate is 5 percent?

b. Suppose you have just purchased the bond, and suddenly the market interest rate rises to 7 percent. What is the bond worth?

c. Suppose that one year has elapsed, you have received the first coupon payment, and the market interest rate is still 7 percent. How much would another investor be willing to pay for your bond? If you sell your bond at this price, what would be your rate of return?

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