You purchased a $1,000 five percent coupon bond that matures in 10 years.

How much would your bond be worth if interest rates fall to 4% the day after you purchase

Solution:

The price of the bond equals the (Present Value) PV of all future cash flows. This includes
the PV of the Face Value plus the PV of all Coupon Payments discounted at the market
interest rate (Yield to Maturity - YTM)

Coupon Payment $50

If interest rates fall to 4% the day after you purchase the bond

###

If interest rates fell to 4% one year after you purchased the bond:

###
after you purchase the bond? What would the bond be worth in one year if interest rates fell to 4%
est rates fell to 4% at that point?