3. The Corner Grocer has a 7-year, 6 percent annual coupon bond outstanding with
ID: 2710998 • Letter: 3
Question
3. The Corner Grocer has a 7-year, 6 percent annual coupon bond outstanding with a $1,000 par value. The bond has a yield to maturity of 5.5 percent. What is the percentage change in the price of this bond when the yield to maturity goes up to 7%?3. The Corner Grocer has a 7-year, 6 percent annual coupon bond outstanding with a $1,000 par value. The bond has a yield to maturity of 5.5 percent. What is the percentage change in the price of this bond when the yield to maturity goes up to 7%?
3. The Corner Grocer has a 7-year, 6 percent annual coupon bond outstanding with a $1,000 par value. The bond has a yield to maturity of 5.5 percent. What is the percentage change in the price of this bond when the yield to maturity goes up to 7%?
Explanation / Answer
Bond price ( YTM 5.5%) = 60 /(1.055)^1 + 60 /(1.055)^2+60 /(1.055)^3+60 /(1.055)^4+60 /(1.055)^5+60 /(1.055)^6+60 /(1.055)^7+1000 /(1.055)^7
Bond price ( YTM 5.5%) = $1,028.41
Bond price ( YTM 7%) = 60 /(1.07)^1 + 60 /(1.07)^2+60 /(1.07)^3+60 /(1.07)^4+60 /(1.07)^5+60 /(1.07)^6+60 /(1.07)^7+1000 /(1.07)^7
Bond price ( YTM 7.0%) = $946.11
% Change = (Bond price ( YTM 7.0%) / Bond price ( YTM 5.5%) ) -1
= (946.11 / 1028.41 ) -1
= -8.00%
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