Question

A 5-year 6.5% annual coupon bond is selling to yield 7%. The bond pays interest annually....

A 5-year 6.5% annual coupon bond is selling to yield 7%. The bond pays interest annually. The par value of the bond is $100. a. What is the price of the 5-year 6.5% coupon bond selling to yield 7%? b. What is the price of this bond one year later assuming the yield is unchanged at 7%? c. Suppose that one year later the yield of the bond decreases to 6.7%. What is the price change attributable to moving to maturity assuming no change in the discount rate? What is the price change attributable to a decrease in the discount rate from 7% to 6.7%? What is the total price change?

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Answer #1

Formulas Used;-

Tenure(years) 5
Face value 100
Yield 0.07
Coupon payment 6.5
a. Price of the bond =PV(C3,C1,-C4,-C2)
b. Price of the bond =PV(C3,4,-C4,-C2)
c. Yield(new) 0.067
Price of the Bond =PV(C7,4,-C4,-C2)
Price change of moving maturity =C6-C5
Price Change of Change in Disc. Rate =C8-C5-C9
Total Price Change =C10+C9

I hope my efforts will be fruitful to you....

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