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.
