interest rates have been falling. describe what has happened to the price of bonds taht were traded in the secondary market
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Once purchased, bonds can be sold in the secondary market. The value of a bond depends on the prevailing interest rates, which vary over time. Suppose that, in January, 1982 , you bought a 30 -year zero coupon U.S. Treasury bond with a maturity value of $$\$ 100,000$$ and a yield of $15 \%$ annually. a. How much did you pay for the bond? b. In January 1999, your bond had 13 years remaining until maturity. Rates on U.S. Treasury bonds of comparable length were about $4.75 \%$. If you sold your bond to an investor looking for a return of $4.75 \%$ annually, how much money would you have received? c. Using your answers to parts (a) and (b), what was the annual yield on your 17 -year investment?
The Mathematics of Finance
Compound Interest
4. A bond trader purchased each of the following bonds at a yield to maturity of 8%. Immediately after she purchased the bonds, interest rates fell to 7%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table: Price @ 8% Price @ 7% Percentage Change 10-year, 10% annual coupon 113.42 121.07 6.74% 10-year zero 46.32 50.83 9.75% 5-year zero 4.76% 30-year zero 9.94 13.14 32.19% Perpetuity, $100 annual coupon 1,250 1428.57 14.29%
Sri K.
What will be the consequence for bond prices of an increase in interest rates?
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