A 7.00 percent coupon bond with 16 years left to maturity is priced to offer a 7.7 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.3 percent. What is the change in price the bond will experience in dollars?
Using financial calculator BA II Plus - Input details: |
YTM 7.7% |
YTM 7.3% |
I/Y = Yield = Rate = YTM = |
7.70 |
7.30 |
FV = Future Value = |
-$1,000 |
-$1,000 |
N = Number of coupon payments = |
16 |
15 |
PMT = Payments = FV x Coupon rate = |
-$70.00 |
-$70.00 |
CPT > PV = Present Value = Bond Price |
$936.83 |
$973.19 |
Change in bond price = 973.19 - 936.83 = $36.36
Notes:
1. Assuming annual coupon here.
2. Change in bond price can be represented in negative or positive based on requirement
3. Bond YTM of 7.3% would occur next year hence 15 years are taken for calculation
PS: Please comment if any case of queries. Thanks
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