[Solved] Bonds Pay Coupons Annually

Instructions: The yield of the 10-year US Treasury bond is 1.20%. It is the risk-free rate. You work for investment manager and your boss asks you to calculate the price of a 10-year corporate bond that yields 3.00% more than its risk-free rate and has a face value of $1,000. The fixed coupon of this corporate bond is 5.00%. Both bonds pay coupons annually. 

• What is the current price of the corporate bond? 

• Calculate the price of the bond if its yield increased by 1.00%. 

• Calculate the price of the bond if its yield decreased by 1.00%. 

• Please discuss the risk associated with this change in interest rates? 

Requirements: 

• Submit a Word document or Excel spreadsheet. 

• At least three pages in length, excluding the Title and Reference pages.