Consider a 4.6 percent coupon bond with five years to maturity and a current pri

Question

Consider a 4.6 percent coupon bond with five years to maturity and a current price of $1,046.10. Suppose the yield on the bond suddenly increases by 2 percent.

Use duration to estimate the new price of the bond. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Calculate the new bond price. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

a.

Use duration to estimate the new price of the bond. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

Answer:

Description Year 1 Year 2 Year 3 Year 4 Year 5 Maturity Value    1,000.00 Interest at 4.6%         46.00         46.00         46.00         46.00          46.00 P.V. factor @ 3.57%           0.97           0.93           0.90           0.87            0.84 Present Value         44.41         42.88         41.41         39.98       877.73 Present Value of Bond 1046.10 Current yield 3.57% Sudden increase 2% New Yield 5.57% Description Year 1 Year 2 Year 3 Year 4 Year 5 Maturity Value    1,000.00 Interest at 4.6%         46.00         46.00         46.00         46.00          46.00 P.V. factor @ 5.57%           0.95           0.90           0.85           0.81            0.76 Present Value         43.57         41.27         39.10         37.03       797.68 New Price of Bond 958.66

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