Question

A 7.60 percent coupon bond with 14 years left to maturity is priced to offer a 8.3 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.9 percent. What is the change in price the bond will experience in dollars? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Answer 1

Statement showing Price or Intrinsic Value                 ( Assume face value to be $1000, coupon payment=1000*0.076=76)
Particulars	Time	PVf @8.3%	Amount	PV
Cash Flows (Interest)	1.00	0.9234	76.00	70.18
Cash Flows (Interest)	2.00	0.8526	76.00	64.80
Cash Flows (Interest)	3.00	0.7873	76.00	59.83
Cash Flows (Interest)	4.00	0.7269	76.00	55.25
Cash Flows (Interest)	5.00	0.6712	76.00	51.01
Cash Flows (Interest)	6.00	0.6198	76.00	47.10
Cash Flows (Interest)	7.00	0.5723	76.00	43.49
Cash Flows (Interest)	8.00	0.5284	76.00	40.16
Cash Flows (Interest)	9.00	0.4879	76.00	37.08
Cash Flows (Interest)	10.00	0.4505	76.00	34.24
Cash Flows (Interest)	11.00	0.4160	76.00	31.62
Cash Flows (Interest)	12.00	0.3841	76.00	29.19
Cash Flows (Interest)	13.00	0.3547	76.00	26.96
Cash Flows (Interest)	14.00	0.3275	76.00	24.89
Cash flows (Maturity Amount)	14.00	0.3275	1,000.00	327.50
Intrinsic Value of Bond or Current Bond Price				943.29
Current price is $943.29
Since 1 years have already elapsed and initial maturity was 14 years there are 13 Years left for Maturity
Yield to maturity is 7.9%
Statement showing Price or Intrinsic Value
Particulars	Time	PVf @7.9%	Amount	PV
Cash Flows (Interest)	1.00	0.9268	76.00	70.44
Cash Flows (Interest)	2.00	0.8589	76.00	65.28
Cash Flows (Interest)	3.00	0.7960	76.00	60.50
Cash Flows (Interest)	4.00	0.7378	76.00	56.07
Cash Flows (Interest)	5.00	0.6837	76.00	51.96
Cash Flows (Interest)	6.00	0.6337	76.00	48.16
Cash Flows (Interest)	7.00	0.5873	76.00	44.63
Cash Flows (Interest)	8.00	0.5443	76.00	41.37
Cash Flows (Interest)	9.00	0.5044	76.00	38.34
Cash Flows (Interest)	10.00	0.4675	76.00	35.53
Cash Flows (Interest)	11.00	0.4333	76.00	32.93
Cash Flows (Interest)	12.00	0.4016	76.00	30.52
Cash Flows (Interest)	13.00	0.3722	76.00	28.28
Cash flows (Maturity Amount)	13.00	0.3722	1,000.00	372.20
Intrinsic Value of Bond or Current Bond Price				976.20
Current price is $976.20
Change in price of bond= 976.20-943.29=$32.91
So change in price of bond is $32.91