Question

Problem 3-34 (LG 3-4)

Consider a(n) Eight-year, 11.5 percent annual coupon bond with a face value of $1,000. The bond is trading at a rate of 8.5 percent.

a. What is the price of the bond?
b. If the rate of interest increases 1 percent, what will be the bond’s new price?
c. Using your answers to parts (a) and (b), what is the percentage change in the bond’s price as a result of the 1 percent increase in interest rates? (Negative value should be indicated by a minus sign.)
d. Repeat parts (b) and (c) assuming a 1 percent decrease in interest rates.
  
(For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

Answer 1