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Explain the implication as relate to interest rate risk

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Reference no: EM132519410

You own a bond that pays $100 in annual interest, with $1,000 par value. It matures in 15 years. The market's required yield to maturity on a comparable risk bond is 12%.

Question a. Calculate the value of the bond

Question b. How does the value change if the yield to maturity on a comparable risk bond:

(i) increases to 15 percent

(ii) decreases to 8 percent

Question c. Explain the implication of your answers in part (b) as they relate to interest rate risk. premium bonds, and discount bonds

Question d. Assume that the bond matures in five years instead of 15 years. Recalculate your answer in part (b)

Question e. Explain the implication of your answers in part (b) as they relate to interest rate risk, premium bonds, and discount bonds

Reference no: EM132519410

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