Question

You buy a 30 year bond that pays a 4% coupon for par (100% of face...

You buy a 30 year bond that pays a 4% coupon for par (100% of face value), almost instantaneously the Federal Reserve Bank announces a rate hike which now means that the same bond would be issued with a 6% coupon. So how much do you lose if you were to sell your bond? Hint: you are solving for a PV and 6% is your rate or “I”.

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Answer #1

New bond price will be $724.70

Hence, Amount of loss will be $275.30 ($1,000-$275.30)

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