Someone just issued 3-year bonds that make annual coupon payments of $60

Duration of Bond = 3 years

Annual Coupon Payments = $60

Par Value and Purchase Value = $1,000

Coupon Percentage = $60/$1,000 = 6%

Since the purchase price is the same as Par Value, Yield to Maturity (Interest rate) will be the same as Coupon Rate which is 6%.

After purchase, interest rate = 7%

Thus, the interest rate increased by 1% from 6% to 7%. Because the interest rate is higher and the coupon payment at 6% which is fixed and is lower than the interest rate, the bond price will reduce.

New Price of the bond = Present Value of Coupon Payments of 3 years + Present Value of Par Value to be paid at the end of 3rd year

Present Value of Coupon Payments of 3 years = Annual Coupon * Cumulative Discount Factor for 7% for 3 years =$60*((1-(1+7%)^-3))/7% (where 7% is the interest rate (discount factor) and 3 is the tenure of the bond)

=$60*2.62432 = $157.46

Present Value of Par Value to be paid at the end of 3rd year = Par Value * Discount Factor for 7% at end of 3rd year

=$1,000*(1/(1+7%)^3) = $,1000*0.81630 = $816.30

New Price of the Bond = $157.46+$816.30 = $973.76