6 points 3A. Assume an original issue and new bond with 30 years remaining to ma

Question

6 points 3A. Assume an original issue and new bond with 30 years remaining to maturity whicit discount that may apply t S1000 and a coupon rate of 3.5 %. The goi 3.5% and its duration is 16. and new bond with 30 years remaining to maturity which is sold for S100 $1000, It has a par value of ing rate of interest in the market or the rate of discount that may apply to this bond is What would be the change in the price of this bond if the interest rates rise by 1% to 45% Show all calculations. pts 3. B. What would be the new price? Show all calculations

Explanation / Answer

Face Value of the Bond : 1000

Maturity = 30 Years

Rate of Interest = 3.5%, Thus yearly Coupon = 35

YTM = 4.5%

The formula for PV is as follows:

PV = C { 1 - [1/(1+r)n]}/r + F/(1+r)n

Thus PV = 35 *{ 1 - [ 1 / (1+0.045)30 ]} / 0.045 + 1000 / (1+0.045)30

= 35 * 0.733/0.045 + 1000/3.745 = $ 837.13

Now we can calulate change in Price as 1000 - 837.13 = 162.86 Dollars.

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