A bond has a face value of $1,000,has 5 years until maturity,and an annual coupon rate of 7%? It yields 5% currently.By how much will the price change over the next year if the yield remains constant?
A) zero
B) decline by $86.59
C) decline by $15.67
D) rise by $15.67

Question

Quizplus · Accepted Answer

Price today = $70(1 / 0.05+1 / (0.05 × 1.05⁴)) + $1,070 / 1.05⁵= $1,086.59Price next year = $70(1 / 0.05+1 / (0.05 × 1.05³)) + $1,070 / 1.05⁴ = $1,070.92Price declines by $15.67

A Bond Has a Face Value of $1,000,has 5 Years