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?

Homework Answers

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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