Consider a 3-year bond maturing Sept 30,2019.Assume that you bought the bond on Sept 30,2016,at a price of $1,074.56 ($1,000 face value).If rates stay as they are for the rest of the year,what percentage change in price do you expect over the next year based on your estimate of the bond price after the second coupon is paid (Sept 30,2017)? Assume that the bond pays semi-annual coupons (4.5% annual coupon rate)and has a bond equivalent yield of 1.93% per annum.

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P_bond = 11ea7fdb_fc01_e7a9_a768_41c99aace9ba_TB2902_11 × 11ea7fdb_fc01_e7aa_a768_49da19dc5d17_TB2902_11 + 11ea7fdb_fc01_e7ab_a768_fb05c32221b2_TB2902_11 P_Purchased = 22.50 × 11ea7fdb_fc02_0ebc_a768_651cb4126efc_TB2902_11 + 11ea7fdb_fc02_0ebd_a768_472904905d7a_TB2902_11 = $1,074.56 Using a financial calculator: N = 6, I/Y = .965, PMT = -22.50, FV = -1,000, CPT PV = $1,074.56 P_{One Year Later} = 22.50 × 11ea7fdb_fc02_0ebe_a768_7f18e55c6e94_TB2902_11 + 11ea7fdb_fc02_0ebf_a768_bf491f9376d5_TB2902_11 = $1,050.18 Using a financial calculator: N = 4, I/Y = .965, PMT = -22.50, FV = -1,000, CPT PV = $1,050.18 % Change = 11ea7fdb_fc02_0ec0_a768_2baace94d847_TB2902_11 = -2.269%

Consider a 3-Year Bond Maturing Sept 30,2019