Question

3. What is the percentage change in price for a zero coupon bond if the yield changes from

9​%

to

6​%?

The bond has a face value of

​$1,000

and it matures in

16

years. Use the price determined from the first​ yield,

9​%,

as the base in the percentage calculation.

Answer 1

Price of the bond at an yield of 9%:

Information provided:

Face value= future value= $1,000

Time= 16 years

Yield to maturity= 9%

The value of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 16

I/Y= 9

Press the CPT key and PV to compute the present value.

The value obtained is 251.87.

Therefore, the price of bond is $251.87.

Price of the bond at an yield of 6%:

Information provided:

Face value= future value= $1,000

Time= 16 years

Yield to maturity= 6%

The value of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 16

I/Y= 6

Press the CPT key and PV to compute the present value.

The value obtained is 393.65.

Therefore, the price of bond is $393.65.

Percentage change in price = New price - old price / Old price

= $393.65 - $251.87 / $251.87

= $141.78 / $251.87

= 0.5629*100

= 56.29%.