Question

A bond with a $1,000 par, 5 years to maturity, a coupon rate of 5%, and...

A bond with a $1,000 par, 5 years to maturity, a coupon rate of 5%, and annual payments has a yield to maturity of 3.4%. What will be the actual percentage change in the bond price if the yield changes instantaneously to 5.6%? (If your answer is, e.g., 1.123%, enter it as 1.123.)

Homework Answers

Answer #1
Current price of a bond, is the sum of the PV of the maturity
value of the bond and the PV of periodic interest payments,
when discounted at the YTM.
Price when YTM was 3.4%:
Price = 1000/1.034^5+50*(1.034^5-1)/(0.034*1.034^5) = $      1,072.45
Price when YTM was 5.6%:
Price = 1000/1.056^5+50*(1.056^5-1)/(0.056*1.056^5) = $         974.45
% change in price = 974.45/1072.45-1 = -9.14%
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