The yield of the 10-year US Treasury bond is 1.20%. It is the risk-free rate. You work for investment manager and your boss asks you to calculate the price of a 10-year corporate bond that yields 3.00% more than its risk-free rate and has a face value of $1,000. The fixed coupon of this corporate bond is 5.00%. Both bonds pay coupons annually. • What is the current price of the corporate bond? • Calculate the price of the bond if its yield increased by 1.00%. • Calculate the price of the bond if its yield decreased by 1.00%. • Please discuss the risk associated with this change in interest rates?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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The yield of the 10-year US Treasury bond is 1.20%. It is the risk-free rate. You work
for investment manager and your boss asks you to calculate the price of a 10-year
corporate bond that yields 3.00% more than its risk-free rate and has a face value of
$1,000. The fixed coupon of this corporate bond is 5.00%. Both bonds pay coupons
annually.
• What is the current price of the corporate bond?
• Calculate the price of the bond if its yield increased by 1.00%.
• Calculate the price of the bond if its yield decreased by 1.00%.
• Please discuss the risk associated with this change in interest rates?

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