A company issues a ten-year bond at par with a coupon rate of 6% paid semi-annually.The YTM at the beginning of the third year of the bond (8 years left to maturity)is 7.8%.What was the percentage change in the price of the bond over the past two years?

Question

Quizplus · Accepted Answer

The bond's price decreases when the YTM increases. Initially, the bond was issued at par with a 6% coupon rate. When the YTM increased to 7.8%, the bond's price fell. The percentage change in price can be calculated using the bond pricing formula and comparing the initial price (at par) to the new price with the updated YTM. This results in a decrease of approximately 10.56%.

A Company Issues a Ten-Year Bond at Par with a Coupon