Question

Consider a 3-year bond that pays a coupon of $500 at the end of each year....

Consider a 3-year bond that pays a coupon of $500 at the end of each year. The principal of the bond is $10,000.

(a) What is the coupon rate for this bond?

(b) If the market interest rate that prevails when the bond is initially issued is 2 percent per annum, what will be the price (presentvalue) of the bond?

(c) Suppose that the maturity date on the bond was 300 years. If the market interest rate is 2 percent per annum, what is the (approximate) price of the bond?

(d) What lesson can we draw from (b) and (c) about the relative sensitivity of bond prices to changes in interest rates?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A 13-year, 6 percent coupon bond pays interest semiannually. The bond has a face value of...
A 13-year, 6 percent coupon bond pays interest semiannually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield to maturity rises to 5.7 percent from the current rate of 5.5 percent?
A 10-year, 7 percent coupon bond pays interest semiannually. The bond has a face value of...
A 10-year, 7 percent coupon bond pays interest semiannually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield to maturity rises to 6 percent from the current rate of 5.5 percent?
Consider a one-year maturity, $120,000 face value bond that pays a 10 percent fixed coupon annually....
Consider a one-year maturity, $120,000 face value bond that pays a 10 percent fixed coupon annually. What is the price of the bond if market interest rates are 7 percent? What is the price of the bond if market interest rates are 5 percent? What is the percentage price change for the bond if interest rates increase 70             basis points from the original 6 percent?
A company just issued a 5 year bond for a price of $100 that pays coupons...
A company just issued a 5 year bond for a price of $100 that pays coupons every 6 months. The coupon rate is 3percent per annum, the yield is 3 percent per annum and the principal is $100. The bond buyer was also a company. Both the buying and selling companies are subject to a 30% corporate tax rate. Which of the following statements is NOT correct? All things remaining equal, per one bond, every 6 months: Select one: a....
Consider a 10 year bond with face value $1,000, pays 6% coupon annually and has a...
Consider a 10 year bond with face value $1,000, pays 6% coupon annually and has a yield-to-maturity of 7%. How much would the approximate percentage change in the price of bond if interest rate in the economy decreases by 0.80% per year? increase by 5.55% increase by 5.55% increase by 5.98% decrease by 5.98%
Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of...
Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 7.4 percent, has a YTM of 6.8 percent, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 6.8 percent, has a YTM of 7.4 percent, and has 13 years to maturity. What is the price of each bond today? If interest rates remain unchanged, what do you expect the price of...
A revenue bond matures in 15 year, pays a 5.5 percent coupon rate every 6 months,...
A revenue bond matures in 15 year, pays a 5.5 percent coupon rate every 6 months, and has a face value of $5,000. The market interest rate for similar risk and maturity municipal bonds is 4 percent. What is the current price of the bond? What would the price be if the market was 6 percent?
Knight, Inc., has issued a three-year bond that pays a coupon rate of 4.84 percent. Coupon...
Knight, Inc., has issued a three-year bond that pays a coupon rate of 4.84 percent. Coupon payments are made semiannually. Given the market rate of interest of 3.56 percent, what is the market value of the bond? (Round answer to 2 decimal places, e.g. 15.25.)
Blossom, Inc., has issued a three-year bond that pays a coupon rate of 7.8 percent. Coupon...
Blossom, Inc., has issued a three-year bond that pays a coupon rate of 7.8 percent. Coupon payments are made semiannually. Given the market rate of interest of 4.2 percent, what is the market value of the bond? (Round answer to 2 decimal places, e.g. 15.25.)
2. Knight, Inc., has issued a three-year bond that pays a coupon of 8.00 percent. Coupon...
2. Knight, Inc., has issued a three-year bond that pays a coupon of 8.00 percent. Coupon payments are made semiannually. Given the market rate of interest of 4.90 percent, what is the market value of the bond? (Round answer to 2 decimal places, e.g. 15.25.)