Percentage Change in Bond Prices
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A 16-year, 4.5 percent coupon bond pays interest annually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield to maturity rises to 5.7 percent from the current rate of 5.5 percent?
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Solution Summary
This solution shows with detailed calculations, what happens to bond prices when the market interest rate changes. The current prices of the bond have been calculated using a financial calculator. The solution also includes an explanation on how to calculate a percentage change in price.
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Dear Student:
This problem is a bond problem, where the bond pays annual coupon payments. First you need to find the current price using the 5.5% market rate, then find the current price using the new 5.7% rate, and finally, compare the two prices and calculate the percentage change.
I have used a HP 10BII financial calculator; if you are using another financial calculator, you may need to adjust the inputs accordingly. You will find the current price of the bond using the following inputs into the ...
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