ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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4. Bond prices and interest yields
Consider a bond without expiration date that makes a fixed interest payment of $90 per year.
Complete the following table by calculating the interest rate on the bond at different sale prices.
(Hint: The effective interest rate on a bond is a ratio of the interest payment to the sale price of
the bond times 100.)
Price of Bond
(Dollars)
1,200
1,000
750
600
Use the blue points (circle symbol) and the preceding table to plot the relationship between bond
prices and interest rates on the following graph.
Interest Rate (Percent)
Note: Plot your points in the order in which you would like them connected. Line segments will
connect the points automatically.
15.0
13.5
12.0
10.5
9.0
7.5
6.0
4.5
3.0
1.5
0
500
Interest Rate
(Percent)
7.5
9
600
12
15
700
800 900 1000 1100 1200 1300
Price of Bond (Dollars)
Relationship
(?)
The line showing the relationship between bond prices and interest rates has a
other words, there is
relationship between bond prices and interest rates.
slope; in
expand button
Transcribed Image Text:4. Bond prices and interest yields Consider a bond without expiration date that makes a fixed interest payment of $90 per year. Complete the following table by calculating the interest rate on the bond at different sale prices. (Hint: The effective interest rate on a bond is a ratio of the interest payment to the sale price of the bond times 100.) Price of Bond (Dollars) 1,200 1,000 750 600 Use the blue points (circle symbol) and the preceding table to plot the relationship between bond prices and interest rates on the following graph. Interest Rate (Percent) Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 15.0 13.5 12.0 10.5 9.0 7.5 6.0 4.5 3.0 1.5 0 500 Interest Rate (Percent) 7.5 9 600 12 15 700 800 900 1000 1100 1200 1300 Price of Bond (Dollars) Relationship (?) The line showing the relationship between bond prices and interest rates has a other words, there is relationship between bond prices and interest rates. slope; in
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