A 7.20 percent coupon bond with 15 years left to maturity is priced to offer a 7
ID: 2771215 • Letter: A
Question
A 7.20 percent coupon bond with 15 years left to maturity is priced to offer a 7.9 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.5 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 7.20 percent coupon bond with 15 years left to maturity is priced to offer a 7.9 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.5 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
Change in bond price: (Assumed annual compounding and face value $1000)
= Current bond price-Bond price one year ahead
= [$72×PVAF(7.9%,15)+$1000×PVF(7.9%,15)]- [$72×PVAF(7.5%,14)+$1000×PVF(7.5%,15)]
= [$620.06+$319.65]-[$611.22+$363.31]
= -$34.82
Bond price increase by $34.82
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