In: Finance
Suppose a 15-year bond with $100 face value, 5.50% coupon rate and quarterly coupons is currently trading at par. All else constant, if the yield to maturity of the bond suddenly changes to 8.00% APR, what will happen to this bond’s price?
Face value | $ 100 |
Coupon rate | 5.50% |
Number of coupon payments per years | 4 |
Coupon payment per period | $ 1.38 |
Years to maturity | 15 |
Yield to maturity | 8.00% |
Price after YTM change | $ 78.27 |
When the bond is trading at par, it means its price is $100 (i.e face value). So after the yield to maturity changes to 8.00%, the price of the bond will drop to $78.27.
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