Show your math to receive credit: Suppose that you have just bought a four-year $10,000 coupon bond with a coupon rate of 7% when the market interest rate is 7%. Immediately after you buy the bond, the market interest rate falls to 5%. What happens to the value of your bond?
At the initial interest rate of 7%, the bond’s value is:
At an interest rate of 5%, the bond’s value is:
The bond’s value (has rise/has fallen) by $____?