You purchased a $1,000 five percent coupon bond that matures in 10 years.
How much would your bond be worth if interest rates fall to 4% the day after you purchase the bond? What would the bond be worth in one year if interest rates fell to 4% at that point?© BrainMass Inc. brainmass.com June 3, 2020, 10:12 pm ad1c9bdddf
The price of a bond is the present value of interest and principal discounted at the market rate. For the given bond, the annual interest is 1,000X5%=$50, the years to maturity are 10, principal amount is $1,000 and the discounting rate is the market rate which is 4%.
In order to calculate the ...
The solution explains how to calculate the value of a bond given change in interest rates