Question

Consider two bonds, a 3-year bond paying an annual coupon of 3%, and a 20-year bond, also with an annual coupon of 3%. Both bonds currently sell at par value. Now suppose that interest rates rise and the yield to maturity of the two bonds increases to 6%. a. What is the new price of the 3-year bond?

Answer 1

New price = $919.81

Step-by-step explanation:

Computation of the given data are as follows:

Let Face value (FV) = $1,000

YTM (Rate ) = 6%

Time period (Nper) = 3 years

Coupon rate = 3%

Coupon payment = 3% × $1,000 = $30

So, we can calculate the new price by using financial calculator.

The attachment is attached below:

New price = $919.81