Question

A 12-year, 5% coupon bond pays interest annually. The bond has a face value of $1,000. What is the change in the price of this bond if the market yield rises to 6%from the current yield of 4.5%?

Answer 1

Coupon   Bond Value New
B= PV anninuity + PV Principal repay	F =	$1,000
B=   (FxC)x[(1/r)-1/(r(1+r)^n)]+[F/(1+r)^n]	r =	6%
C = coupon = annual rate x bond	c =	5%
r = yield t omaturity (YMT)	n =	12
n = term to maturity	B =	$     916.16
F = Face value of bond
Coupon Bond Value Original
B= PV anninuity + PV Principal repay	F =	$1,000
B=   (FxC)x[(1/r)-1/(r(1+r)^n)]+[F/(1+r)^n]	r =	4.5%
C = coupon = annual rate x bond	c =	5%
r = yield t omaturity (YMT)	n =	12
n = term to maturity	B =	$  1,045.59
F = Face value of bond
Percentage   change in price = (New price – Original price) / Original price
-12.38%