Question

There is a 10%, 13 year note bond which has a ytm of 9%. The ytm alters by half a percent down. By how much does the price alter? If the ytm drops by 3%, by how much does the price change?

What is the exact percentage change of the bond in the 2 cases?

Answer 1

Using financial calculator
Input:

FV = 1000

PMT = 10%*1000 = 100

N = 13

I/Y = 9

Solve for PV as -1074.87 . Price = $1074.87

If the yTM decreases by 0.5%,

Using financial calculator
Input: FV = 1000

PMT = 10%*1000 = 100

N = 13

I/Y = 8.5

Solve for PV as -1115.36 . Price = 1115.36

% change = (1115.36-1074.87)/ 1074.87

= 3.77%

If the yTM decreases by 3%

Using financial calculator
Input: FV = 1000

PMT = 10%*1000 = 100

N = 13

I/Y = 6

Solve for PV as -1354.11  . Price = 1354.11

% change = (1354.11-1074.87)/ 1074.87

= 25.98%