Price-interest rate relationships of fixed-rate assets

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Reference no: EM131994115

Consider a five-year, 15% annual coupon bond with a face value of $1,000. The bond is trading at a rate of 12%.

a. what is the price of the bond?

b. if the rate of interest increases 1%, what will be the bond's new price?

c. usuing your answers to part (a) and (b), what is the percentage change in the bond's price as a result of the 1% increase in interest rates?

d. repeat parts (b) and (c) assuming a 1% decrease in interest rates.

e. what do the differences in your answers indicate about the price-interest rate relationships of fixed-rate assets?

Reference no: EM131994115

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