Question

A $5,000 bond with a coupon rate of 6.8​% paid semiannually has nine years to maturity and a yield to maturity of 6.6​%. If interest rates fall and the yield to maturity decreases by​ 0.8%, what will happen to the price of the​ bond?

Answer 1

Par Value =5000
Maturity = 9( Number of Periods = 2*9 = 18
New YTM = 6.6%-0.8% = 5.8%
Coupon = 6.8%*5000/2 = 170

Price of Bond after fall in YTM = PV of Coupons + PV of par value =170*((1-(1+5.8%/2)^-18)+1000/(1+5.8%/2)^18 = 5346.76
Par Value =5000
Maturity = 9( Number of Periods = 2*9 = 18
New YTM = 6.6%-0.8% = 5.8%
Coupon = 6.8%*5000/2 = 170
Price of bond at YTM 6.6% = PV of Coupons + PV of par value =
170*((1-(1+6.6%/2)^-18)/(6.6%/2)+1000/(1+6.6%/2)^18 = 5067.06
Increase in price rise =5346.76 -5067.06 = 279.71

Option a is correct option