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Annie Kavitha
Annie Kavitha, Lecturer
Category: Finance
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Experience:  M.Com
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a 12 year, 5 % coupon bond pays interest annually. The bond

Customer Question

a 12 year, 5 % coupon bond pays interest annually. The bond has a face value of $1000. What is the change in price of this bond if the market yield rises to 6% from the current yield of 4.5%. please show math
Submitted: 7 years ago.
Category: Finance
Expert:  Annie Kavitha replied 7 years ago.

current yield = coupon payment/current market price

 

coupon payment = 5% of 1,000 = 50

 

If the current yield is 4.5%, then

 

Current market price = 50/4.5%

 

=$1,111.11

 

when the market yield rises to 6% then,

 

Market price = 50/6%

 

= $833.33

 

Change in the price of the bond ($1,111.11 - $833.33) is a decrease of $277.78

Customer: replied 7 years ago.
that answer is incorrect. I need a percentage indicating a 12 percent decrease.