Consider a 3-year bond with a par value of $1,000 and an 8% annual coupon.If interest rates change from 8 to 6% the bond's price will:
A) increase by $51.54.
B) decrease by $51.54.
C) increase by $53.46.
D) decrease by $53.46.

Question

Quizplus · Accepted Answer

Price = (0.08 × $1,000) {(1 / 0.06) − [1 / 0.06(1.06)³]} + $1,000 / 1.06³Price = $1,053.46This is a price increase of $53.46, since the bond had sold at par.

Consider a 3-Year Bond with a Par Value of $1,000