Question

One year ago, Alpha Supply issued 5-year bonds at par. The bonds have a coupon rate of 6 percent and pay interest semi-annually. Today, the market rate of interest on these bonds is 6.5 percent.

What is the price of these bonds today? $

Compared to the issue price, by what percentage has the price of these bonds changed?  %

(Use a negative to denote a decrease and a positive value to denote an increase)

Answer 1

  

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Value of Bond =

Where r is the discounting rate of a compounding period i.e. 6.5% / 2 = 0.0325

And n is the no of Compounding periods 5 years * 2 = 10

Coupon 6% / 2 = 0.03

=

= 978.94

% Change = 978.94 - 1000 / 1000 = -2.11%

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