Question

1. a bond has a face (maturity) value of $1000, 5 years til maturity, an annual coupon rate of 7% and ayield to maturity of 5%. how much willl the bond price change in 1 year if the yield remains constant?

2. What is the current yield on the bond at 1year and year 2?

Answer 1

1)	Change in price		$     -15.67
Working:
	Current price		=-pv(rate,nper,pmt,fv)			Where,
			$ 1,086.59			rate	=	5%
						nper	=	5
						pmt	=	$       70.00
						fv	=	$ 1,000.00
	Price in 1 year		=-pv(rate,nper,pmt,fv)			Where,
			$ 1,070.92			rate	=	5%
						nper	=	4
						pmt	=	$       70.00
						fv	=	$ 1,000.00
	Change in price	=	$ 1,070.92	-	$ 1,086.59
		=	$     -15.67
2)	Current yield at:
	1 Year		6.54%
	2 Year		6.64%
	Working:
	Current yield at 1 year	=	Annual coupon	/	Price in 1 year
		=	$       70.00	/	$ 1,070.92
		=	6.54%
	Current yield at 2 year	=	Annual coupon	/	Price in 2 year
		=	$       70.00	/	$ 1,054.46
		=	6.64%
	Price in 2 year		=-pv(rate,nper,pmt,fv)			Where,
			$ 1,054.46			rate	=	5%
						nper	=	3
						pmt	=	$       70.00
						fv	=	$ 1,000.00