Question

A 13-year, 6 percent coupon bond pays interest semiannually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield to maturity rises to 6.7 percent from the current rate of 5.5 percent

Answer 1

Answer: -10.14%

Explanation:

Original Price of bond:

Interest is paid semiannually so some variables need to be adjusted:

Period = 13 * 2= 26 semi annual periods

Coupon = 6% * 1,000 * 0.5 = $30 per period

Yield = 5.5% / 2 = 2.75%

Price = $1,046

Price after yield increases to 6.7%

Period = 13 * 2= 26 semi annual periods

Coupon = 6% * 1,000 * 0.5 = $30 per period

Yield = 6.7% / 2 = 3.35%

Price = $939.88

Percentage change = (939.88 - 1,046) / 1,046

= -10.14%