Question

Suppose a 9-year bond with $100 face value, 2.00% coupon rate and annual coupons is currently trading at a price of $104.00. All else constant, if the yield to maturity of the bond suddenly changes to 7.00% APR, what will happen to this bond’s price?

Group of answer choices

it will increase by $39.118

it will decrease by $36.576

it will stay the same

it will decrease by $36.974

Answer 1

Face/Par Value of bond = $100

Annual Coupon Bond = $100*2%

= $2

No of years to maturity(n) = 9 years

- Current price of Bond = $104

- All else constant, if the yield to maturity(YTM) of the bond suddenly changes to 7.00% APR

So, new YTM = 7%

Calculating the Market price of Bond after change in YTM:-

Price = $13.030 + $54.393

Price = $67.423

The price of Bond after change in YTM is $67.423

So, the change in price of bond = $104 - $67.423

= $36.576
Thus, Bond price decreased by $36.577

Option 2

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