A 9%,16-year bond has a yield to maturity of 11% and duration of 9.25 years.If the market yield changes by 32 basis points,how much change will there be in the bond's price?

Question

Quizplus · Accepted Answer

To calculate the price change, we use the following formula:

Price Change = -Duration * Price * Change in Yield

where:
- Duration = 9.25
- Price = the current price of the bond
- Change in Yield = 0.32%

First, we need to calculate the current price of the bond using the given information:

Coupon Rate = 9%
Years to Maturity = 16
Yield to Maturity = 11%

Using a financial calculator or Excel, we can find that the current price of the bond is $895.51.

Now we can plug in the values into the formula:

Price Change = -9.25 * $895.51 * 0.0032 = -$25.82

As a percentage of the current price, this is:

Price Change percentage = (-$25.82 / $895.51) * 100% = -2.88%

This is closest to answer choice C) 2.67%. Note that the answer is negative, indicating that the bond price will decrease as market yield increases.

A 9%,16-Year Bond Has a Yield to Maturity of 11