What would be the price of a zero coupon 30-maturity bond that provides a yield to...
What would be the price of a zero coupon 30-maturity bond that provides a yield to maturity of 4%? What will happen to the price of this bond if the yield to maturity of this bond increased to 6%? Compute the percentage change in the price.
Homework Answers
The price of the bond if YTM is 4% is computed as follows:
= $ 1,000 / 1.0430
= $ 308.318668
The price of the bond if YTM is 6% is computed as follows:
= $ 1,000 / 1.0630
= $ 174.1101309
So, the price of the bond has reduced if we increase the YTM.
The percentage change in price is computed as follows:
= ( $ 174.1101309 - $ 308.318668 ) / $ 308.318668
= - 43.53% Approximately
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