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What is the current price of the bond

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Suppose you buy a bond that will pay $10,000 principal at the end of 10 years. No coupon interest payments are made on the bond. (It is a zero coupon bond.) If the yield to maturity of similar zero coupon bonds is 6 percent per year:

a. What is the current price of the bond?

b. What will be the price of the bond if the market yield to maturity instantaneously increases to 8 percent per year?

c. What will the price be if the yield to maturity instantaneously declines to 4 percent per year? (1. Explain the relationship among the prices. (In solving this problem, write out the cash ?ows. Use the present value tables in your GP. )

Reference no: EM133002854

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