Question

You bought a 10-year bond with $100 face value at a price of $101 with a coupon rate of 5.00% paid semiannually. After 5 years, (5 years left in maturity) you decide to sell it and you find that the new yield to maturity is 6.00% APR. What is the percentage change in the bond’s price?

Group of answer choices

-1.46%

-8.36%

-5.21%

5.50%

Answer 1

We will use BA 2 plus financial calculator to find the Price of the bond after 5 years when the YTM is 6%:

FV(Face Value) = $100

N(Number of periods left to maturity) = 5*2 = 10

I/Y(Interest rate per period) = 6%/2 = 3%

PMT(Coupon payment per period) = (5%*100)/2 = $2.5

CMPT PV

Price of the bond after 5 years = $95.7349

Percentage change in the bond’s price = ($95.7349-$101)/$101 = 0.0521 or 5.21%

Hence, Option C is the answer.