Question

Bond Features
Maturity (years) =	9
Face Value =	$1,000
Starting Interest Rate	4.37%
Coupon Rate =	3%
Coupon dates (Annual)

If interest rates change from 4.37% to 5.2% immediately after you buy the bond today (and stay at the new interest rate), what is the price effect in year 4 ?

State your answer to the nearest penny (e.g., 48.45)

If there is a loss, state your answer with a negative sign (e.g., -52.30)

Answer 1

Value of Bond @ 4.37%

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 0.0437

And n is the no of Compounding periods 5 years

Coupon 3%

=

= 939.64

Value of Bond @ 5.20%

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 0.0520

And n is the no of Compounding periods 5 years

Coupon 3%

=

= 905.28

Change = 905.28 - 939.64= -34.36