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What is the percentage price change for a zero coupon bond if its YTM changes from...

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Finance

What is the percentage price change for a zero coupon bond ifits YTM changes from 3.9% to 4.6%? The bond's face value is $1,000and it matures in 8 years. Use the price determined from the firstyield, 3.9%, as the base in the percentage calculation. Round tothe nearest tenth of a percent. (e.g., 4.32% = 4.3). ?[Hint: If theprice dropped, enter a negative number].

Answer & Explanation Solved by verified expert
4.4 Ratings (964 Votes)

Current price
Bond
                  K = N
Bond Price =? [( Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =8
Bond Price =? [(0*1000/100)/(1 + 3.9/100)^k]     +   1000/(1 + 3.9/100)^8
                   k=1
Bond Price = 736.34
Change in YTM =0.7
Bond
                  K = N
Bond Price =? [( Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =8
Bond Price =? [(0*1000/100)/(1 + 4.6/100)^k]     +   1000/(1 + 4.6/100)^8
                   k=1
Bond Price = 697.82
%age change in price =(New price-Old price)*100/old price
%age change in price = (697.82-736.34)*100/736.34
= -5.23%

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Transcribed Image Text

What is the percentage price change for a zero coupon bond ifits YTM changes from 3.9% to 4.6%? The bond's face value is $1,000and it matures in 8 years. Use the price determined from the firstyield, 3.9%, as the base in the percentage calculation. Round tothe nearest tenth of a percent. (e.g., 4.32% = 4.3). ?[Hint: If theprice dropped, enter a negative number].

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