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There is a 10%, 13 year note bond which has a ytm of 9%. The ytm...

  1. There is a 10%, 13 year note bond which has a ytm of 9%. The ytm alters by half a percent down. By how much does the price alter? If the ytm drops by 3%, by how much does the price change? What is the exact percentage change of the bond in the 2 cases?

Please show formula and show all work.

Solutions

Expert Solution

Price at 9% = $1074.87 (Prices are computed using PV function in excel)

Price when YTM drops = $1115.36

% change = (Later price- initial price)/ Initial price

= (1115.36-1074.87)/1074.87

=3.77%

Price if YTM drops 3% = $1354.11

% change = (1354.11-1074.87)/1074.87

= 25.98%

WORKINGS

jeff jeffy answered 1 year ago
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