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Analyzing the impact of interest rate change on prices

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Interest Rate Sensitivity

A bond trader purchased each of the following bonds at a yield to maturity of 9%. Immediately after she purchased the bonds, interest rates fell to 5%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table. Round your answers to two decimal places.

Price @ 9% Price @ 5% Percentage Change
10-year, 10% annual coupon $ $ %
10-year zero %
5-year zero %
30-year zero %
$100 perpetuity %

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Solution Summary

This solution depicts the steps to calculate the price changes due to variation in interest rate for the given cases.

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A bond trader purchased each of the following bonds at a yield to maturity of 9%. Immediately after she purchased the bonds, interest rates fell to 5%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table.
1) 10-year, 10% annual coupon
Face value of bond=M=$1000
Coupon amount=C=1000*10%=$100
Number of periods=n=10
YTM=r=9%
Price of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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