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mezya [45]
3 years ago
12

A 5.75 percent coupon bond with 10 years left to maturity is priced to offer a 6.5 percent yield to maturity. You believe that i

n one year, the yield to maturity will be 6.0 percent. What is the change in price the bond will experience in dollars
Business
1 answer:
balu736 [363]3 years ago
4 0

Answer:

The change in price is $36.91  

Explanation:

Using the present value pv formula in excel the price of the bond now and in one year's time can be computed:

=pv(rate,nper,pmt,fv)

rate is the yield to maturity which is 6.5% and 6% respectively

nper is the number of years to maturity which is 10 years and 9 years respectively

pmt is the periodic payment of coupon 5.75%*$1000=$57.5

fv is the value receivable on redemption which is $1000 in both cases

=pv(6.5%,10,57.5,1000)

pv=$946.08  

=pv(6.00%,9,57.5,1000)

pv=$983.00  

Change in price =$983.00 -$946.08  =$36.91  

Find attached.

Download xlsx
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