Question

A bond with a $1,000 par, 4 years to maturity, a coupon rate of 4%, and annual payments has a yield to maturity of 4.1%. What will be the actual percentage change in the bond price if the yield changes instantaneously to 5.3%? (If your answer is, e.g., 1.123%, enter it as 1.123.)

Answer 1

Price of the bond @ 4.1% = present value of coupon payments + present value of face value PMT*(1-(1/(1+r^n)))/r+ (face value/(1+r)^n $996.38 40*(1-(1/(1.041^4)))/0.041+(1000/1.04144) Price of the bond @ 5.3% = $954.22 40*(1-(1/(1.05344)}}/0.053+(1000/1.05344) Change in the bond's price in %= (new price - old price) + old price [(954.22-996.38)/996.38 ] -4.231