Question

A $1,000 face value has a 5% annual coupon rate. The next coupon is due in one year and the bond matures in 26 years. The current YTM on the bond is 4.2%. What is the dollar value of the price change if the bond's YTM increases to 6.3%? Round to the nearest cent. ​[Hint: 1) If the price drops, the change is a negative number. 2) Do not compute duration. You can calculate the precise impact of a yield change on the bond's price by comparing the prices under the two scenarios.]

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

ΕΩΣ в $1,000.00 5% Face value of Bond Annual coupon rate Years to maturity Yield to maturity Current price of bond 26 4.20% $1,125.12 -Nm Woo FM If, YTM increase to New price of Bond 6.30% $835.80 Dollar value of price change $289.33

Cell reference -

Face value of Bond Annual coupon rate Years to maturity Yield to maturity Current price of bond 1000 0.05 26 0.042 =PV(C5,C4,-C3*C2,-C2,0) If, YTM increase to New price of Bond 0.063 =PV(C8, C4,-C3*C2,-C2,0) Dollar value of price change =C9-C6 14

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.