y work mode : This shows what is correct or incorrect for the work you have comp
ID: 2808066 • Letter: Y
Question
y work mode : This shows what is correct or incorrect for the work you have completed so far. it does not indicate completion A 6.45 percent coupon bond with 15 years left to maturity is priced to offer a yield to maturity of 7.9 percent. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollars? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) 3 Answer is complete but not entirely correct 76.77 K Prev 4 of5 lE Next>Explanation / Answer
Since FV is not mentioned, we take by default FV = $100.
Given C = 6.45% OF 100 = $6.45; r=7.9%=0.079, n= 15
Initial Bond Price = [C(1-(1/(1+r)n))/r ]+ FV / (1 + r)n
Initial Bond Price = [6.45(1-(1/(1.079)15))/0.079] + 100/(1.07915)
Initial Bond Price = $87.515
After One Year, YTM = 75 -> r=0.07, n=14, FV=100, $C=6.45
Final Bond Price = [6.45(1-(1/(1.07)14))/0.07] + 100/(1.0714)
Final Bond Price = $95.1899
Chnage in Price = 95.1899-87.515 = $7.67
Therefore change in price = $7.67
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