Questiuon: Consider a five-year, 15 percent annual coupon bond with a face value of $1,000. The bond is trading at a rate of 12 percent.
a. What is the price of the bond?
b. If the rate of interest increases 1 percent, what will be the bond's new price?
c. Using your answers to parts (a) and (b), what is the percentage change in the bond's price as a result of the 1 percent increase in interest rates?
d. Repeat parts (b) and (c) assuming a 1 percent decrease in interest rates.
e. What do the differences in your answers indicate about the price-rate relationships of fixed-rate assets?