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Question

Consider a five-year, 15 percent annual coupon bond with a face value of $1,000. The bond is trading at a market

yield to maturity of 12 percent.

 

a)    What is the price of the bond?


b)   If the market yield to maturity increases 1 percent, what will be the bond's new price?


c)    Using your answers to parts (a) and (b), what is the percentage change in the bond's price as a result of the 1 percent increase in interest rates?

Top Answer

a). Bond's Market Value = PV of Coupon Payment + PV of Maturity Value = [Periodic Coupon Payment * {(1 - (1 + r)^-n) / r}] +... View the full answer

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