Question

What is the percentage change in price for a zero coupon bond if the yield changes...

What is the percentage change in price for a zero coupon bond if the yield changes from 6% to 7%? The bond has a face value of ​$1 comma 1,000 and it matures in 12 years. Use the price determined from the first​ yield, 66%, as the base in the percentage calculation.

Homework Answers

Answer #1
Price of zero coupon bond = Present value of maturity amount
Step 1 : Price at 6% yield
PV= FV/(1+r)^n
Where,
FV= Future Value
PV = Present Value
r = Interest rate
n= periods in number
= $1000/( 1+0.06)^12
=1000/2.0122
= $496.97
Step2 : Price at yield 7%
PV= FV/(1+r)^n
Where,
FV= Future Value
PV = Present Value
r = Interest rate
n= periods in number
= $1000/( 1+0.07)^12
=1000/2.25219
= $444.01
Step 3 : Percentage change in price
=($444.01-496.97)/496.97
=-10.66%
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