# Compound interest rate

At a compound interest rate of 10% per year, $10,000 one year ago is equivalent to how much 1 year from now?

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#### Solution Summary

Compound interest rate is studied and the details are provided in the solution.

Semiannual Compounding on Bond, Coupon Bond, Rate, Interest, Yield, change

See attached file.

Use semiannual compounding on all bond problems unless otherwise indicated.

1. Determine the price of a $1,000 6% coupon rate bond that pays interest semiannually and has 5 years before maturity when similar securities have yields of 5%.

2. How much money will you be willing to pay for a 3 year $1,000 4% coupon bond that pays interest semiannually when similar securities have yields of 6%?

3. What is the current yield of the bond in question #2?

4. Would you pay 970 for a $1,000 deep discount bond that has 7 years remaining before maturity when similar securities had yields of 6%? Use semiannual compounding of interest rates. Use a coupon rate of 5%

5. What is the yield to maturity on a $1,000 5% coupon bond that pays interest semiannually, has 3 years before maturity and is currently trading at 96?

6. What is the coupon yield on the bond in question #5? What is the current yield on the bond in question #5?

7. If the yield to maturity on a bond decreases, will the price of the bond change? If yes, how will the price of a bond change.

8. List at least three factors that can cause interest rates to change.

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