Answer:
Percentage change in the bond price=0.524%
Explanation:
The current bond price can be expressed as;
Current bond price=(Semi-annual coupon×((1-(1/(1+r)^i)/r)+ (face value/(1+r)^i)
where;
i-maturity period=1 year
,since it has 2 periods in a year,i=2
r-nominal yield to maturity rate=7.2/2=3.6%
Semi-annual coupon rate=6.5/2=3.25%
face value=$1,000
Semi-
annual coupon=(3.25/100)×1,000=$32.5
replacing;
Current bond price=Semi-annual coupon×((1-(1/(1+r)^i)/r + face value/(1+r)^i
(32.5×((1-(1/(1+0.036)^2)/0.036)+1,000/(1+0.036)^2
(32.5×(1-0.93)/0.036)+931.71
(32.5×1.94)+931.71=63.05+931.71=
Current bond price=$994.76
Percentage change=((Face value-Current bond price)/(Face value))×100
Percentage change=((1,000-994.76)/1000)×100
(5.24/1000)×100=0.524%
Percentage change in the bond price=0.524%
