Consider a(n) Five-year, 12 percent annual coupon bond with a face value of $1,0
ID: 2820033 • Letter: C
Question
Consider a(n) Five-year, 12 percent annual coupon bond with a face value of $1,000. The bond is trading at a rate of 9 percent. a. What is the price of the bond? b. If the rate of interest increases 1 percent, what will be the bond’s new price? c. Using your answers to parts (a) and (b), what is the percentage change in the bond’s price as a result of the 1 percent increase in interest rates? (Negative value should be indicated by a minus sign.) d. Repeat parts (b) and (c) assuming a 1 percent decrease in interest rates.
PLEASE EXPLAIN ALL NUMBERS AND STEPS. IF ABLE TO ALSO INCLUDE FINANCIAL CALCULATOR STEPS. THANKS
Explanation / Answer
a. N = 5, PMT = 120, FV = 1000, 1/Y= 9%
use PV function in calculator
price = 1116.69
b. N = 5, PMT = 120, FV = 1000, 1/Y= 10%
use PV function in calculator
price = 1075.82
c. %change = 1075.82/1116.69 - 1 = -3.66%
d.
N = 5, PMT = 120, FV = 1000, 1/Y= 8%
use PV function in calculator
price = 1159.71
%change = 1159.71/1116.69 - 1 = 3.85%