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15 December, 07:58

A 6.5 percent coupon bond with 14 years left to maturity is priced to offer a 7.2 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.8 percent. What is the change in price the bond will experience in dollars? (LG7-5)

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  1. 15 December, 09:20
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    The correct answer is : 35.49

    Explanation:

    Calculation of the current bond price:

    N = 28, I = 3.6, PMT = 32.50

    FV = 1,000; CPT PV = - 938.89

    Calculation of the price in one year:

    N = 26, I = 3.4, PMT = 32.50,

    FV = 1,000; CPT PV = 974.38

    So, the dollar change in price is:

    $974.38 - $938.89 = $35.49
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