Question

5.85 percent coupon bond with 10 years left to maturity is priced to offer a yield to maturity of 6.7 percent. You believe that in one year, the yield to maturity will be 6.0 percent. What is the change in price the bond will experience in dollars

Answer 1

Answer:

$50.92

Explanation:

                 10 years                    9 years

Nper =   10*2 = 20                      9*2 = 18

Rate = 6.7%/2 = 0.0335             6%/2 = 0.03

PMT = 1000*5.85%/2 = 29.25   1000*5.85%/2 = 29.25

FV =        1000                               1000

PV (Price) = -PV(RATE, NPER, PMT, FV)

Price (10 years) = $938.77

Price (9 years) = $989.68

If interest rate decrease%. Change in price of bond = $989.68 - $938.77 = $50.92