Consider a Zerobond (i.e., a bond that pays no coupon payment, meaning that the

ID: 2645458 • Letter: C

Question

Consider a Zerobond (i.e., a bond that pays no coupon payment, meaning that the coupon rate on the

bond is 0%) with a par value of $1,000 that will mature exactly 12 years from today. The current

YTM of this Zerobond is 5.2%. Two years ago the YTM of the same Zerobond was 4.6%. Calculate

the dollar price increase/decrease (2 decimal places) within the last two years. If the bond falls in

price, enter your answer on D2L as a negative value (i.e., put a minus sign before your number with

no space between the minus sign and the number). If the bond increases in price, record the dollar

amount of the increase.Round all dollar answers to 2 decimal places

Two Year ago

Bond Value = Face Value/(1+YTM)^nper

Bond Value = 1000/(1+4.6%)^14

Bond Value = $ 532.79

Current Price

Bond Value = Face Value/(1+YTM)^nper

Bond Value = 1000/(1+5.2%)^12

Bond Value = $ 544.27

The dollar price increase = 544.27 - 532.79

The dollar price increase = $ 11.48

Answer

Increase in bond Price = $ 11.48

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