Question

A bond with a $1,000 face value has a 7% annual coupon rate. The bond matures in 16 years. The current YTM on the bond is 4.6%. If this bonds' YTM were to increase to 5.8%, what would be the resulting price change in dollar terms? Round to the nearest cent. ​[Hint: 1) If the price drops, the change is a negative number. 2) Calculate the precise impact of a yield change on the bond's price by computing and comparing the prices under the two scenarios. Do not use the duration approach here, which gives the approximate price impact of a yield change.]

Answer 1

B 1 BOND FACE VALUE 1000 2 coupon rate 7% 3 COUPON VALUE 70.00 4 PERIOD 16 YEARS 5 rate 4.60% 6 BOND PRICE IS the present value of all its cash inflow 8 Present value (1) 1,267.67 =PV(B5,16,-70,-1000,0) 11 BOND FACE VALUE 1000 12 coupon rate 7% 13 COUPON VALUE 70.00 14 PERIOD 15 rate 5.80% 16 BOND PRICE IS the present value of all its cash inflow 1,122.95 =PV(B15,16,-70,-1000,0) 20 impact of change in the yield -144.72 =B18-B8 reduction in the current market price

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