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Bond Features Maturity (years) = 6 Face Value = $1,000 Starting Interest Rate 3.83% Coupon Rate...

Bond Features
Maturity (years) =	6
Face Value =	$1,000
Starting Interest Rate	3.83%
Coupon Rate =	4%
Coupon dates (Annual)

If interest rates change from 3.83% to 6.63% immediately after you buy the bond today (and stay at the new interest rate), what is the price effect in year 4 ?

State your answer to the nearest penny (e.g., 48.45)

If there is a loss, state your answer with a negative sign (e.g., -52.30)

Expert Solution

_______________________________

Value of Bond @ 6.63%

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 0.0663

And n is the no of Compounding periods 2 years

Coupon 4%

=

= 952.20

Value of Bond @ 3.83%

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 0.0383

And n is the no of Compounding periods 2 years

Coupon 4%

=

= 1003.21

Change = 1003.21 - 952.20 = 51.01

jeff jeffy answered 2 years ago

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