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    Value of a bond

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    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?

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    Solution Preview

    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 ...

    Solution Summary

    The solution explains how to calculate the value of a bond given change in interest rates