Answer:
14.29%
Explanation:
An investor purchased the following five bonds.
Each bond had a par value of $1,000 and a 8% yield to maturity on the purchase day.
Immediately after the investor purchased them, interest rates fell, and each then had a new YTM of 7%.
What is the percentage change in price for each bond after the decline in interest rates
Generally, the relationship can be expressed as interest rate = Coupon Payment / Face Value.
At purchase coupon rate = $80/$1000 = 8%
Thereafter coupon rate = $80/Revised bond price = 7%
Solving as : Revised bond price x 0.07= $80
Revised bond price = $80 / 0.07 = $1,142.85
Therefore % change in bond price = [($1,142.85 - $1000) / $1000] x 100 = 14.29%
