Suppose a two-year 9% p.a.bond with a face value of $100 000 has a yield of 8% p.a.Assume the yield on this bond decreases instantaneously from 8% p.a.to 7.75% p.a.What would be the expected increase in the bond price?

A) $ \$ 317.79 $
B) $ \$ 423.27 $
C) $ -\$ 459.15 $
D) $ \$ 501.07 $

Question

Suppose a two-year 9% p.a.bond with a face value of $100 000 has a yield of 8% p.a.Assume the yield on this bond decreases instantaneously from 8% p.a.to 7.75% p.a.What would be the expected increase in the bond price?

A) $ \$ 317.79 $
B) $ \$ 423.27 $
C) $ -\$ 459.15 $
D) $ \$ 501.07 $

Quizplus · Accepted Answer

As demonstrated in examples 6.7 and 6.8,we can find the expected increase in the bond price using the following: {[(0.0775/2)- (0.080/2)]/(1 + 0.080/2)} F1F1F1S1F1F1F10 3.752 F1F1F1S1F1F1F10 101814.95 = -$459.15.

Suppose a Two-Year 9% P $317.79 \$ 317.79 $317.79 B) $423.27 \$ 423.27 $423.27

Suppose a Two-Year 9% P $\$ 317.79$ B) $\$ 423.27$