Question

- 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?

Answer #1

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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