### Estimate current value of bond when interest rate

##### Reference no: EM1367512

Q. Assume you are thinking of buying a \$1000 face-value coupon bond with a coupon rate of 10%, a maturity of 3 years and a cost of \$1079.

a. Is yield to maturity going to be above or below 10%? Why?

b. Write down equation that can be solved for yield to maturity of this bond: that is, equation that equates Current value of bond payments to cost of bond.

c. Estimate Current value of bond when interest rate is 8%.

d. Must yield to maturity be above or below 8%?

e. Estimate Current value of bond when interest rate is 5%.

f. Must yield to maturity be above or below 5%?

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