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Calculate Change In Bond Price With Change In Market Interest Rates

Question

Consider a six-year maturity, $100,000 face value bond that pays a 5 percent fixed coupon annually.

1. What is the price of the bond if market interest rates are 4 percent?
    a.    $105,816.44.
    b.    $105,287.67.
    c.    $105,242.14.
    d.    $100,000.00.
    e.    $106,290.56.

2. What is the price of the bond if market interest rates are 6 percent?
    a.    $95,082.68.
    b.    $95,769.55.
    c.    $95,023.00.
    d.    $100,000.00.
    e.    $96,557.87.

3. What is the percentage price change for the bond if interest rates decline 50 basis points from the original 5 percent?
    a.    –2.106 percent.
    b.    +2.579 percent.
    c.    +0.000 percent.
    d.    +3.739 percent.
    e.    +2.444 percent.


Summary

These short questions belong to Finance and they deal with the calculation of price of a bond with 1 year maturity depending upon the market interest rates.

Total Word Count 78

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