Question

Bond A has an annual coupon of 6% and bond B has an annual coupon of 9%. Both have 7 years until maturity. The market demanded interest rates for these bonds moves from 4.5% to 5.5%. What is the price of bond B after the interest rate change?

(Round to the nearest hundredth and do not enter a dollar or percent sign)

Answer 1

Information provided:

Par value= future value= $1,000

Time= 7 years

Coupon rate= 9%

Coupon payment= 0.09*1,000= $90

Yield to maturity= 5.5%

The price of the bond after the interest rate change is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 90

I/Y= 5.5

N= 7

Press the CPT key and PV to compute the present value.

The value obtained is 1,198.90.   

Therefore, the price of the bond after the interest rate change is $1,198.90.