Question

Consider a 12-year bond with a par value of $1,000 and an 10% annual coupon rate....

Consider a 12-year bond with a par value of $1,000 and an 10% annual coupon rate. If interest rates change from 11% to 9% the bond's price will:

a) increase by $136.53

b) decrease by $163.84

c) increaes by $163.84

d) decrease by $136.53

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Homework Answers

Answer #1

a) increase by $136.53

Working:

Price at 11% =-pv(rate,nper,pmt,fv) Where,
= $     935.08 rate = 11%
nper = 12
pmt = $           100
fv = $       1,000
Price at 9% =-pv(rate,nper,pmt,fv) Where,
= $ 1,071.61 rate = 9%
nper = 12
pmt = $           100
fv = $       1,000
Increase in price = $ 1,071.61 - $ 935.08
= $     136.53
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