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

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 8 years from today. The current YTM of this Zerobond is 6.2%. Two years ago the YTM of the same Zerobond was 5.2%. Calculate the dollar price increase/decrease (2 decimal places) within the last two years. If the bond falls in price, enter your answer on uLearn 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.

Explanation / Answer

FV = $1000

Coupon rate = 0%

YTM = current = 6.2% ;2nd year = 5.2%

Current Price = $1000/(1+.062)^8 = $618.02

Befor 2 years price = $1000/(1+.052)^8 = $666.61

Price has decreased by $-48.59

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