A 5.5 percent coupon bond with 18 years left to maturity is priced to offer a 7.50 percent yield to maturity. You believe that in one year, the yield to maturity will be 4.75 percent. What is the change in price the bond will experience in dollars? (Assume semi-annual interest payments and $1,000 par value.)
a) Price of the bond 18 years to maturity:
=PV(7.5%/2,18*2,5.5%/2*1000,1000)
=804.19
b) Price of the bond 17 years to maturity:
=PV(4.75%/2,17*2,5.5%/2*1000,1000)
=1086.81
Change in dollars 282.62
A 5.5 percent coupon bond with 18 years left to maturity is priced to offer a...
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