A 12-Year, 5% Coupon Bond Pays Interest Annually

question 50

Multiple Choice

A 12-year, 5% coupon bond pays interest annually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%?

• A) 11.11% decrease
• B) 12.38% decrease
• C) 12.38% increase
• D) 14.13% decrease
• E) 14.13% increase

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Definitions:

Interest Rate

The part of the loan amount that is levied as interest by the lender on the borrower, often presented as an annual percentage rate of the loan's total value.

Rate of Return

The net gain or loss of an investment over a specified period, expressed as a percentage of the investment's initial cost.

Interest Rate

The fraction of a monetary amount imposed for its borrowing, often stated in terms of an annual percentage rate.

Investment

The allocation of resources, often financial, into a venture or asset, with the expectation of generating income or profit.