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What happens to the price of a three-year annual coupon paying bond with an 8% coupon when interest rates change from 8% to 8.96%
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24 votes
24 votes
What happens to the price of a three-year annual coupon paying bond with an 8% coupon when interest rates change from 8% to 8.96%

User Kintalken
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1 Answer

16 votes
16 votes

Answer:

It would reduce to -24.3185

Step-by-step explanation:

I solved this on paper and have added the solution as an attachment

At 8% rate of interest the price of this bond is 1000

At 8.96% rate of interest the calculated price of the coupon bond is 975.681

975.681-1000 = -24.3185

When the interest rate falls from 8% to 8.96%, the price of the bond reduces by -24.3185

What happens to the price of a three-year annual coupon paying bond with an 8% coupon-example-1
User MissT
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