What is your return on the bond after interest rate change, Financial Accounting

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What is your return on the bond after interest rate change

Problem

10-year annual zero-coupon bond is newly issued. It has a face-value of $1000, and an implied interest rate of 8%, calculated annually (not semi annually!). What is the price of the bond?

Suppose you buy this 10-year bond on the first day it was issued, and right after you buy it the interest rate on the bond drops from 8% to 5%:

1) Does the bond go up or go down in value? (please write 'up' or 'down')

2) What is the new price of the bond at the 5% interest rate?

3) What is your return on the bond after the interest rate change?

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Financial Accounting: What is your return on the bond after interest rate change

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Financial Accounting: What is your return on the bond after interest rate change

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