Interest rates and bond prices

1. Explain why the yield of a bond that trades at a discount exceeds the bond’s coupon rate.

2. Explain the relationship between interest rates and bond prices.

3. Why are longer-term bonds more sensitive to changes in interest rates than shorter-term bonds?

4. Explain why the expected return of a corporate bond does not equal its yield to maturity

1. What is the price per $100 face value of a two-year, zero-coupon, risk-free bond?

2. What is the price per $100 face value of a four-year, zero-coupon, risk-free bond?

3. What is the risk-free interest rate for a five-year maturity?



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