Question

CraMerica has 8% coupon bond issue with 8 years to maturity. Each of these bonds make semi-annual interest payments. These bonds have a yield to maturity of 10%. Suddenly, the yield to maturity on these bonds fall to 8%. What is the percentage change in the price of these bonds. Assume a par value of $1,000. Enter your answer to two decimal plances with no percentage sign. That is, like this: 13.61

Answer #1

Price of semi-annual interest bond

= Semi-annual interest * PVIFA _{[Yield to
maturity}_{/2, (Period}_{*2)]} + Maturity
value * PVIF _{[Yield to maturity}_{/2,
(Period}_{*2)]}

**Price of the bond when yield to maturity is
10%**

= $40 * PVIFA _{[5 %, 16]} + $1000 * PVIF _{[5 %,
16}_{]}

=($40 *10.8378) + ($1000 * 0.4581)

= **$892**

**Price of the bond when yield to maturity is
8%**

**Note** : When coupon rate of the bond
= yield to maturity of the bond, then price of the bond
= face value of the bond

= **$1000**

**Percentage change in the price of these
bonds**

= (Price of the bond when yield to maturity is 10% - Price of the bond when yield to maturity is 8%) / Price of the bond when yield to maturity is 10%

= ($892 - $1000 ) / $892 = **12.11**

CraMerica has 8% coupon bond issue with 8 years to maturity.
Each of these bonds make semi-annual interest payments. These bonds
have a yield to maturity of 10%. Suddenly, the yield to maturity on
these bonds fall to 8%. What is the percentage change in the price
of these bonds. Assume a par value of $1,000. Enter your answer to
two decimal plances with no percentage sign. That is, like this:
13.61

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