A 8.40 percent coupon bond with 14 years left to maturity is priced to offer a 9

Question

A 8.40 percent coupon bond with 14 years left to maturity is priced to offer a 9.1 percent yield to maturity. You believe that in one year, the yield to maturity will be 8.7 percent. What is the change in price the bond will experience in dollars? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

A 8.40 percent coupon bond with 14 years left to maturity is priced to offer a 9.1 percent yield to maturity. You believe that in one year, the yield to maturity will be 8.7 percent. What is the change in price the bond will experience in dollars? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Explanation / Answer

Answer: Compute the current bond price:

=42*PVIFA(4.55%,28)+$1000*PVIF(4.55%,28)

=$945.21

Now compute the price in one year:

=42*PVIFA(4.35%,26)+$1000*PVIF(4.35%,26)

=$976.91

So the dollar change in price is:

=$976.91 $945.21 = $31.7

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