Estimate the percentage price change for a five-year, $1,000 par value bond, with a 6 percent coupon, if the yield rises from 8 percent to 8.5 percent. Interest is paid semiannually.
A) 2.1 percent
B) -2.1 percent
C) 4.4 percent
D) -4.4 percent
E) 0 percent

Question

Quizplus · Accepted Answer

The bond's price will decrease when the yield increases. Using the bond price formula and calculating the present value of cash flows at both yields, the percentage change is approximately -2.1 percent.

Estimate the Percentage Price Change for a Five-Year, $1,000 Par