A $1,000 face value bond has a 9% annual coupon rate.The next coupon is due in one year.The bond matures in 15 years and the yield on the bond is 10%.What is the difference in price if the yield rises to 11%?

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Quizplus · Accepted Answer

P_bond = C × 11ea7fdb_fc02_5ce2_a768_8f20efa8e7f8_TB2902_11 + 11ea7fdb_fc02_5ce3_a768_5ba0b4105d75_TB2902_11 P_10% = 90 × 11ea7fdb_fc02_5ce4_a768_5580e4829b32_TB2902_11 + 11ea7fdb_fc02_5ce5_a768_efb34fb81431_TB2902_11 = $923.94 Using a financial calculator: N = 15, I/Y = 10, PMT = -90, FV = -1,000, CPT PV = $923.94 P_11% = 90 × 11ea7fdb_fc02_83f6_a768_2fdb7122ee0d_TB2902_11 + 11ea7fdb_fc02_83f7_a768_bd961639c9f5_TB2902_11 = $856.18 Using a financial calculator: N = 15, I/Y = 11, PMT = -90, FV = -1,000, CPT PV = $856.18 Difference = $856.18 - $923.94 = -$67.76

A $1,000 Face Value Bond Has a 9% Annual Coupon