Explain whether this bond will be selling premium

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Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and a 20% annual yield to maturity.

a) Without any calculation, briefly explain whether this bond will be selling a premium or a discount.

b) Calculate the price of this bond.

c) Calculate the duration of this bond.

d) Suppose the interest rates in the economy rise by 5 percentage points immediately after someone bought this bond. Show a calculation using duration for what should happen to the price of this bond immediately.

e) Suppose now one year passes and the interest rates in the economy are still 5 percentage points higher. If the person that owns this bond sells it for fair value, what would be their one year rate of return? Show a calculation.

Reference no: EM132223582

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