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A 10-year Treasury bond is issued with a face value of $1,000, paying interest of $60 a year. (Coupon rate, price and yield to maturity)

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A10-year Treasury bond is issued with a face value of $1,000, paying interest of $60 a year. If market yields increase shortly after the T-bond is issued, what happens to the bond's:
coupon rate?
price?
yield to maturity?

Company Z-prime is like Z in all respects save one: Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Company Z earnings and dividends per share are expected to grow indefinitely by 5% a year. What is Z-prime's stock price? Assume next year's EPS is $15.

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1. A. The coupon rate is $60 per year and is unaffected by changes in market interest rates.

B. When market yields rise, bond prices fall to increase the yield to the new market levels. As Franklin Templeton notes in this excellent summary of bonds and interest rates, "In order to sell their existing bonds, investors have to reduce their prices to make them equally attractive."

Franklin Templeton
"How do interest rates affect bond prices?"
http://www.franklintempleton.com/retail/jsp_cm/sales_tools/feature_prog/tax_free/pub/int_rate_article.jsp

C. The yield-to-maturity increases because of the bond's ...

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