# Price of Bond

Lester purchases a 30-year Treasury bond today. This bond is selling at par ($1,000) and has a coupon rate and yield to maturity of 7% (the bond pays interest annually). Now suppose that next week, a number of economic events occur which raises the rate of inflation. As a result the market rate of interest rises from 7% to 8%. By how much does the price of your bond immediately decline to?

Please show all computations. Thank you.

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#### Solution Preview

The price of a bond is the sum of the discounted cash flows. The cash flows from a bond are the interest and the principal repayment. The interest amount is paid every year and hence it is in the ...

#### Solution Summary

The solution explains how to calculate the change in the price of a bond given the change in market interest rates

$2.19