| Bond maturity | 4 | Years | initial interest rate = | 4.00% | |
| Coupon Rate | 3.00% | Annual Coupon | |||
| Face Value | $1,000.00 | ||||
| Dollar Coupons | $30.00 | ||||
Given the information in the table, what is the price effect in
year 3
if the interest rate changes from 4.00% to 6.00 %?
in year the bond maturity left is 1 year and coupon =30 and interest(YTM)=4% and face value =1000
the price of bond is
Price=(coupon*(1-((1+i)^-n))/i)+(issue price*(1+i)^-n)
Coupon=maturity value*coupon rate
=30
i=6%
n=1 years
issue price=1000
substituting in formuale we get it as 971.70
If the interest rate is 4% then value is
Coupon=maturity value*coupon rate=30
i=4%
n=1 years
issue price=1000
=990.38
so there is decrease in price
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