Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 3

Suppose that you purchase a newly issued 10-year U.S. Treasury bond for $ 10,000. The bond has a promised interest rate of 5 percent ($250 every six months). The stated interest rate of 5 percent (annual payment of $500 divided by the initial face value of $10,000) does not change over the life of the bond. Do you expect that the market value of the bond will be constant or variable over the life of the bond Explain.