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Suppose a 15-year bond with $100 face value, 5.50% coupon rate and quarterly coupons is currently...

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?

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Expert Solution

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.

Excel formula:

jeff jeffy answered 2 years ago
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