TJ Machine bonds have a coupon rate of 5.3 percent,a face value of $1,000,and pay interest semiannually.The bonds mature in 23 years and have a yield to maturity of 5.4 percent.What will be the percentage change in the bond's price if the market rate increases by 1 percent to 6.4 percent?

Question

Quizplus · Accepted Answer

Bond value = [(0.053 × $1,000)/2] × ({1 - 1/[1 + (0.054/2)]^23×2}/(0.054/2))+ {$1,000/[1 + (0.054/2)]^23×2} = $986.92 11ea6c22_9304_45ca_9716_e1a302d559e3_TB1200_00 Bond value = [(0.053 × $1,000)/2] × ({1 - 1 / [1 + (0.064 / 2)]²³^×2} / (0.064 / 2))+ {$1,000 / [1 + (0.064 / 2)]^23×2} = $868.48 11ea6c22_9304_45cb_9716_678c60f367a0_TB1200_00 Percentage change in price = ($868.48 - $986.92)/ $986.92 = -0.1200,or 12.00%

TJ Machine Bonds Have a Coupon Rate of 5