A 12-year,5 percent coupon bond with a face value of $1,000 pays interest semiannually.What is the percentage change in the price of this bond if the market yield rises to 6 percent from its current level of 4.5 percent?

Question

Quizplus · Accepted Answer

Bond value = [(.05 × $1,000)/2] × ({1 - 1/[1 + (.045/2)]^{12 × 2}}/(.045/2))+ {$1,000/[1 + (.045/2)]^{12 × 2}} = $1,045.97 Bond value = [(.05 × $1,000)/2] × ({1 - 1/[1 + (.06/2)]^{12 × 2}}/(.06/2))+ {$1,000/[1 + (.06/2)]^{12 × 2}} = $915.32 Percentage change in price = ($915.32 - $1,045.97)/$1,045.97 = -.1249,or -12.49%

A 12-Year,5 Percent Coupon Bond with a Face Value of $1,000