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:

Ÿ Par (face) value = $1,000

Ÿ Maturity = five years from today

Ÿ 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)