Question

Bond Features Maturity (years) = 8 Face Value = $1,000 Starting Interest Rate 4.23% Coupon Rate...

Bond Features

Maturity (years) =

8

Face Value =

$1,000

Starting Interest Rate

4.23%

Coupon Rate =

4%

Coupon dates (Annual)

If interest rates change from 4.23% to 5.02% 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)

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Answer #1

Total term is 8 years. In year 4, remaining term to maturity is 4 years

Price effect in year 4= -$20.81 (loss)

Calculations as below:

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