Question

Consider a bond selling at par ($100) with a coupon rate of 6% and 10 years to maturity.
(a) What is the price of this bond if the required yield is 15%?
(b) What is the price of this bond if the required yield increases from 15% to 16%, and by what percentage did the price of this bond change?
(c) What is the price of this bond if the required yield is 5%?
(d) What is the price of this bond if the required yield increases from 5% to 6%, and by what percentage did the price of this bond change?
(e) From your answers to Question 9, parts b and d, what can you say about the relative price volatility of a bond in a high-interest-rate environment compared to a low-interest-rate environment?


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  • CreatedAugust 22, 2015
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