Each bond in the table has a face value of $100.The coupon bonds pay annual coupons,and the next coupon is due in one year.Assume that the yield curve is flat and all yields are currently 3.5%.If interest rates are forecast to rise to 4% from 3.5%,then what is the percentage change in price for the bond whose price changes the most?

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Quizplus · Accepted Answer

The zero coupon bond will change the most as it has the longest maturity. At a yield of 4% its price is: P_bond = 11ea7fdb_fc03_bc90_a768_678b6580e4f1_TB2902_11 P_bond = 11ea7fdb_fc03_bc91_a768_11c484454003_TB2902_11 = $67.56 The change in price = 67.56 - 70.69 = -$3.13 The percentage change is: 11ea7fdb_fc03_bc92_a768_cd134df0a7d9_TB2902_11 = -4.43%

Each Bond in the Table Has a Face Value of $100.The