A 15-year, 6% coupon bond pays interest annually. The bond has a face value of $1,000. What is the change in the price of this bond if the market yield to maturity rises to 6.5% from the current rate of 6.25%?

Question

Quizplus · Accepted Answer

When the market yield to maturity on a bond increases, the price of the bond decreases. This is because the fixed coupon payments become less attractive compared to the new higher yields available in the market, leading to a decrease in the bond's price. The specific percentage decrease depends on the bond's duration, coupon rate, and the magnitude of the yield change. In this case, the correct choice reflects the calculated impact of the yield increase on the bond's price.

A 15-Year, 6% Coupon Bond Pays Interest Annually