Question

11. A bond makes annual coupon payments, is currently worth $971, and has a duration of 5.39 years. The bond's yield-to-maturity is currently 9%. If the rate on same-risk bonds suddenly changes to 8.51%, then what does duration predict the new price of the bond to be? Round your answer to the nearest penny. HINT:Calculate the predicted percentage price change and apply that to the bond's old price of $971.

Answer 1

( Matytm Solution - price = $971 Duration=5.39Y modified duration = 5.39 Duration tytm (1+9%) = 4.94 Change in ytm = - 8.51% = 0.49% change.in% price = 4.94 X 0.49 2.42% 9% - New Price = 971(1 +2-427) - $994-50