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?
Here is your answer:
It declines to 887.77.
Some info for you on bonds:
The rate of return anticipated on a bond if it is held until the maturity date. YTM is considered a ...