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Assume initially that market interest rates are 7% and the bondholder is receiving a $70 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 8%, the bond price: rises to $1,125. falls to $875. falls to $800. falls to $700.

Respuesta :

Answer:

the bond price falls to $875

Explanation:

given data

interest rates = 7%

coupon payment = $70

face value = $1,000

interest rates rise = 8%

to find out

the bond price

solution

we know that rate is increase 7% to 8%

so price will fall price

we get here price that is express as

price = [tex]\frac{coupon}{cost\ of\ debt}[/tex]       ..........................1

price = [tex]\frac{70}{0.08}[/tex]

price = 875

so the bond price falls to $875

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