Consider a 6.6 percent coupon bond with seven years to maturity and a current pr
ID: 2777777 • Letter: C
Question
Consider a 6.6 percent coupon bond with seven years to maturity and a current price of $1,069.40. Suppose the yield on the bond suddenly increases by 2 percent.
Use duration to estimate the new price of the bond. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Calculate the new bond price. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
a.Use duration to estimate the new price of the bond. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Explanation / Answer
Interest Coupon Repayment 66 66 66 66 66 66 66 1000 PVIF@5.389% 0.948912 0.900433 0.854432 0.81078 0.769359 0.730053 0.692756 0.692756155 sum total Coupon*PVIF 62.62817 59.4286 56.39249 53.51149 50.77767 48.18352 45.72191 692.7561553 1069.4 1+Rate of Interest 1.053839 If yield increases by 2% new rate or dicounting factor would be 5.839%+2%=7.389% At 7.389% price is calculated as 958.3134 Interest Coupon Repayment 66 66 66 66 66 66 66 1000 PVIF@7.389% 0.931238 0.867205 0.807574 0.752044 0.700333 0.652177 0.607332 0.607331835 sum total Coupon*PVIF 61.46173 57.23552 53.29992 49.63493 46.22195 43.04365 40.0839 607.3318345 958.3134 1+Rate of Interest 1.073839
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