Question
In: Finance
Bond Dave has a 7 percent coupon rate, makes semiannual payments, a 7 percent YTM, and...
Bond Dave has a 7 percent coupon rate, makes semiannual payments, a 7 percent YTM, and 26 years to maturity. If interest rates suddenly rise by 5 percent, what is the percentage change in the price of Bond Dave? 4 decimals (e.g. 0.0123).
Solutions
Expert Solution
| Bond price is the present value of cash flow from bond. | ||||||||||||
| Existing Price of bond | = | =-pv(rate,nper,pmt,fv) | Where, | |||||||||
| = | $ 1,000.00 | rate | 7.00% | / | 2 | = | 0.035 | |||||
| nper | 26 | * | 2 | = | 52 | |||||||
| pmt | $ 1,000.00 | * | 7.00% | * | 6/12 | = | $ 35.00 | |||||
| fv | = | $ 1,000.00 | ||||||||||
| Revisedg Price of bond | = | =-pv(rate,nper,pmt,fv) | Where, | |||||||||
| = | $ 603.47 | rate | 12.00% | / | 2 | = | 0.06 | |||||
| nper | 26 | * | 2 | = | 52 | |||||||
| pmt | $ 1,000.00 | * | 7.00% | * | 6/12 | = | $ 35.00 | |||||
| fv | = | $ 1,000.00 | ||||||||||
| % change in the price of bond | = | (b-a)/a | Where, | |||||||||
| = | -0.3965 | a | $ 1,000.00 | |||||||||
| b | $ 603.47 | |||||||||||
jeff jeffy answered 2 months agoRelated Solutions
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