Question

A 6.40 percent coupon bond with ten years left to maturity is priced to offer a 7.8 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 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

Bond

K = N

Bond Price =∑ [( Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =10

Bond Price =∑ [(6.4*1000/100)/(1 + 7.8/100)^k]     +   1000/(1 + 7.8/100)^10

k=1

Bond Price = 905.21

Change in YTM =-0.8

Bond

K = N

Bond Price =∑ [( Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =9

Bond Price =∑ [(6.4*1000/100)/(1 + 7/100)^k]     +   1000/(1 + 7/100)^9

k=1

Bond Price = 960.91

change in price =(New price-Old price)

change in price = (960.91-905.21) = 55.7