Citi-group has a 7-year coupon bond with 6% coupon rate and a $1,000 par value. Coupons...
Citi-group has a 7-year coupon bond with 6% coupon rate and a $1,000 par value. Coupons are paid annually. The bond has a yield to maturity of 5.5%, compounded annually. If the yield suddenly increases to 6.5%. Which of the following statements is TRUE?
The bond price will increase by $57.14
The bond price will increase by 5.29%
The bond price will decrease by $53.62
The bond price will decrease by 5.43%
The bond price will decrease by 5.36%
Homework Answers
Hi
To determine the increase / decrease we can find out the price of the bonds at both the yield rates:
If yield is 5.5%-
If yield is 6.5%-
Since the price has decreased from 1028.41 to 972.577 - the price will decrease by 5.43%.
Hence, option 4 is correct.
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