Question: Consider a bond selling at par ($100) with a coupon rate of 6% and 10 years to maturity.
a. What is the price of this bond if the required yield is 15%?
b. What is the price of this bond if the required yield increases from 15% to 16%, and by what percentage did the price of this bond change?
c. What is the price of this bond if the required yield is 5%?
d. What is the price of this bond if the required yield increases from 5% to 6%, and by what percentage did the price of this bond change?
e. From your answers to Question, parts b and d, what can you say about the relative price volatility of a bond in high- compared with low interest-rate environments?