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Interest rate levels

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Explain how a decrease in the general level of interest rates affects the valuation of a firm's bonds. To prove this statement solve and answer the following:

I have $1,000 bind paying 12 percent interest that has 10 years to maturity. If the current interest rates are 10 percent, will a prudent investor pay me more than $1,000 for my bond? Why?

Show your work and how you can compute it on the calculator.

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Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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