Question: What happens to the price of a three-year bond with an 8% coupon when interest...

Question: What happens to the price of a three-year bond with an 8% coupon when interest rates change from 8% to 6%?

Answer: Price increase of $1053.44

Please show how, thank you!

(This is all the information I was given)

Expert Solution

Price of the Bond if the interest rate is 8.00%

The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
Here, the calculation of the Bond Price using financial calculator is as follows


Variables	Financial Calculator Keys	Figure

Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount [$1,000 x 8.00%]	PMT	80
Market Interest Rate or Yield to maturity on the Bond [8.00%]	1/Y	8.00
Maturity Period/Time to Maturity [3 Years]	N	3
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $1,000

Price of the Bond if the interest rate is decrease to 6.00%

The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
Here, the calculation of the Bond Price using financial calculator is as follows


Variables	Financial Calculator Keys	Figure

Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount [$1,000 x 8.00%]	PMT	80
Market Interest Rate or Yield to maturity on the Bond [6.00%]	1/Y	6.00
Maturity Period/Time to Maturity [3 Years]	N	3
Bond Price	PV	?

Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $1,053.44.

“Therefore, if the interest rates change from 8% to 6%, then the Price of the Bond will increase to $1,053.44”

jeff jeffy answered 4 months ago

What is the price of a 5 year bond with a 8% annual coupon rate and...

What is the price of a 5 year bond with a 8% annual coupon rate and face value of $1,000? The prevailing market annual interest rate is 2%. Coupons are to be paid annually.

What is the YTM of a 10 year, 8% semi-annual coupon bond with a price of...

What is the YTM of a 10 year, 8% semi-annual coupon bond with a price of $1220?

1. What is the price for a $1,000 par, 10 year, 8% coupon bond with semiannual...

1. What is the price for a $1,000 par, 10 year, 8% coupon bond with semiannual payments and a 7% yield to maturity? A. 1,105.94 B. 1,106.78 C. 1,071.06 D. 883.31 E. 907.99 2. What is the price for a $1,000 par, 20 year, 8% coupon bond with semiannual payments and a 9% yield to maturity? A. 1,071.06 B. 1,106.78 C. 1,105.94 D. 907.99 E. 883.31 3. What is the price for a $1,000 par, 20 year, 8% coupon bond...

What is the price for a $1,000 par, 20 year, 8% coupon bond with semiannual payments...

What is the price for a $1,000 par, 20 year, 8% coupon bond with semiannual payments and a 10% yield to maturity? (express your answer in dollars and cents. Do not include the $ symbol)

The Garraty Company just issued a 10-year coupon bond, paying 8% coupon interest and the coupon...

The Garraty Company just issued a 10-year coupon bond, paying 8% coupon interest and the coupon interest will be paid semi-annually. Assume investors’ required rate of return is 6%. What’s the value of this bond?

QUESTION 16 One year ago you purchased an 8% coupon rate bond when it was first...

QUESTION 16 One year ago you purchased an 8% coupon rate bond when it was first issued and priced at its face value of $1,000. Yesterday the bond paid its second semi-annual coupon. The bond currently has 7 years left until maturity and has a yield to maturity of 6%. If you sell the bond today, what will your return have been from this investment during the year you held the bond and collected the coupon payments? a. -10.6% b....

Three-year bond with an 8% coupon rate sold to yield 10% on January 1, 2017. Interest payable...

Three-year bond with an 8% coupon rate sold to yield 10% on January 1, 2017. Interest payable annually on December 31. Callable at 105. Face value: $100,000. Bond issue costs: $5,000. Required: 1. Calculation of premium or discount. 2. Recording of bond issuance. 3. Accounting entries.

question 27 This morning, Alicia bought a ten-year 8% coupon bond that pays interest annually. She...

question 27 This morning, Alicia bought a ten-year 8% coupon bond that pays interest annually. She paid $994 for a $1,000 bond. If the market interest rate on this type of bond declines to 6.5% tonight, how much will Alicia receive for her first interest payment? Select one: a. $69.58 b. $40.00 c. $32.31 d. $80.00 e. $70.00 question 26 Your portfolio consists of two stocks. You have $2500 in stock A and $7500 in stock B. The returns for...

An 8 - year corporate bond has 7% coupon rate. What should be the bond's price...

An 8 - year corporate bond has 7% coupon rate. What should be the bond's price if he required return is 6% and the bond pay interest semiannually?

What is the price of a bond with a 14% semi-annual coupon for 8 years to...

What is the price of a bond with a 14% semi-annual coupon for 8 years to maturity at the end of which it repays a principal of 1000, with a YTM of 12%? Will the bond sell at a premium, at par, or at a discount? How can you tell?

Question