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

Question

Consider a Zerobond (i.e., a bond that pay s 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

Explanation / Answer

NOW: FV = 1000; PMT = 0; N = 12; I = 5.2;

CPT PV = FV(PVIF12,5.5%)

=$ 544.3

2 YEARS AGO: FV = 1000; PMT = 0; N = 14; I = 4.6;

CPT PV= FV(PVIF14,4.6%)

=$ 532.8

THUS, THE CHANGE IN THE PRICE OF THE BOND = $11.5

It means the bond has increased in price since 2 years and the increase in dollar amount is 11.5,

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