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Price A $1000 par value bond will mature in 10 years. This bond pays a coupon...

Price A $1000 par value bond will mature in 10 years. This bond pays a coupon of $90 every year. If investors require an annual return of 6%, what is the current price of this bond? Assume annual payments. What is the price if the required rate of return is 8%? What is the price if the required rate of return is 10%? How is the bond price related to the interest rate?
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Answer #1

r = 6%

If r = 6%, the price = $1,220.8026115651

r = 8%

If r = 8%, the price = $1,067.1008139722

r = 10%

If r = 10%, the price = $938.5543289695

The bond price is inversely related to the interest rate meaning higher the interest rate lower will be the bond price and vice versa.

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