U.S. Treasury 30 year maturity, zero coupon bonds are currently selling in the marketplace with a...

U.S. Treasury 30 year maturity, zero coupon bonds are currently selling in the marketplace with a yield to maturity of 7.00%. Even though the bonds have a coupon rate of 0.00%, please assume semi–annual compounding, which is the bond market convention? If inflation increased unexpectedly, forcing the nominal required rate of return on these Treasury bonds to increase by 1.50% to 8.50%, by what dollar amount would the current market price of these bonds decrease? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

Expert Solution

Considering the par value of to be $1000, price of the Bond with semiannual compounding is calculated in excel below:

The decrease in Bond price due to the increase in yield to maturity = 44.63

jeff jeffy answered 1 year ago

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