Question

If the current yield of a bond goes down from 6.8% to 4.7%, by what percent does the market price increase? Round your answer to the nearest percent.

Answer 1

Current yield of a bond goes down from 6.8% to 4.7%

Hence, yield on bond has decreased by a factor of = 4.7/6.8

= 0.6912

Consequently, market price must increase by the same factor

Let the bond price before yield down was $100

Hence, bond price after yield down will be = 100/0.6912

= 144.67

Percentage increase in the market price of bond = (144.67- 100)/100

= 44.67

= 45% (rounded)

Hence, if bond yield goes down from 6.8% to 4.7% , market price of the bond must increase by 45%

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