Question

# There is a 9%, 23 year note bond which has a ytm of 9%. The ytm...

1. There is a 9%, 23 year note bond which has a ytm of 9%. The ytm alters by one percent down. By how much does the price alter? If the ytm drops by 2%, by how much does the price change? What is the exact percentage change of the bond in the 2 cases?

 n = 23 I = 9% Cashflows Amount PVF Present value Annual interest 90 9.58021 862.2189 Maturity value 1000 0.137781 137.781 Price of bonds 999.9999 When YTM drop to 8% n= 23 I = 8% Cashflows Amount PVF Present value Annual interest 90 10.37106 933.3954 Maturity value 1000 0.170315 170.315 Price of bonds 1103.71 Price increase by = 1103.71-1000 =103.71 % increase= 103.71/1000*00 = 10.37 When YTM drop to 7% n= 23 I = 7% Cashflows Amount PVF Present value Annual interest 90 11.27219 1014.497 Maturity value 1000 0.210947 210.947 Price of bonds 1225.444 Price increase by = 1225.44 - 1000 = 225.44 % increase n price = 225.44/1000*100 = 22.54%

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