Assume that today you purchased a Treasury Note with the following characteristics:   Par (face) value = $1,000 Maturity = five years from today Coupon interest rate =5% ALL OTHER THINGS BEING EQUAL:            If the prevailing interest rates for  instruments of similar risk and maturity were to increase from 5% to 10% next week, what would happen to the value of your bond in the secondary market? Explain. (It is not necessary to calculate the yield to maturity. Simply explain the general effects of the change in 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
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question

Assume that today you purchased a Treasury Note with the following characteristics:

 

  • Par (face) value = $1,000
  • Maturity = five years from today
  • Coupon interest rate =5%

ALL OTHER THINGS BEING EQUAL

 

 

 

 

 

If the prevailing interest rates for  instruments of similar risk and maturity were to increase from 5% to 10% next week, what would happen to the value of your bond in the secondary market? Explain. (It is not necessary to calculate the yield to maturity. Simply explain the general effects of the change in rates)

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Bonds Prices and Interest Rate
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education