A $1,000 par value bond with five years left to maturity pays an interest payment semiannually...
A $1,000 par value bond with five years left to maturity pays an interest payment semiannually with a 6% coupon rate and is priced to have a 5% yield to maturity. If interest rates surprisingly increase by 0.5%, by how much would the bond’s price change?
Homework Answers
| Percentage change in price of first bond | -2.12% | |||||||||||
| Working: | ||||||||||||
| # 1 | Existing Price | = | =-pv(rate,nper,pmt,fv) | Where, | ||||||||
| = | $ 1,043.76 | rate | = | Discount rate | = | 2.5% | ||||||
| nper | = | Time | = | 10 | ||||||||
| pmt | = | Coupon Payment | = | $ 30 | ||||||||
| fv | = | Maturity value | = | $ 1,000 | ||||||||
| # 2 | Changed price | = | =-pv(rate,nper,pmt,fv) | Where, | ||||||||
| = | $ 1,021.60 | rate | = | Discount rate | = | = | 2.75% | |||||
| nper | = | Time | = | = | 10 | |||||||
| pmt | = | Coupon Payment | = | = | $ 30 | |||||||
| fv | = | Maturity value | = | $ 1,000 | ||||||||
| # 3 | Percentage change in price of Bond Ted | = | (b-a)/a | Where, | ||||||||
| = | -2.12% | a | = | Existinf price | = | $ 1,043.76 | ||||||
| b | = | Changed rice | = | $ 1,021.60 | ||||||||
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