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  2. 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.

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.

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)


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