# Assume a three-year bond with

Assume a three-year bond with an 8% annual coupon. If rateschange from 8% to 6% , what is the price change in the bond. Pleasegive me dollar value per \$1,000 face and % of par.

Price of the bond at interest rate of 8%:

Information provided:

Par value= future value=\$1,000

Time= 3 years

Coupon rate= 8%

Coupon payment= 0.08*1,000=\$80

Yield to maturity= 8%

The price of the bond is calculatedby computing the present value of the bond.

Enter the below in a financialcalculator to compute the present value:

FV= 1,000

PMT= 80

N= 3

I/Y=8

Press the CPT key and PV to computethe present value.

The value obtained is1,000.

Therefore, the price of thebond at interest rate of 6% is\$1,000.

Price of the bond at interest rate of 6%:

Information provided:

Par value= future value=\$1,000

Time= 3 years

Coupon rate= 8%

Coupon payment= 0.08*1,000=\$80

Yield to maturity= 6%

The price of the bond is calculatedby computing the present value of the bond.

Enter the below in a financialcalculator to compute the present value:

FV= 1,000

PMT= 80

N= 3

I/Y=6

Press the CPT key and PV to computethe present value.

The value obtained is1,053.46.

Therefore, the price of thebond at interest rate of 6% is\$1,053.46.

Price change in the bond:

= \$1,053.46 – \$1,000

=\$53.46.

% of par:

= \$53.46 / \$1,000*100

= 0.0535*100

=5.35%.

In case of any query, kindlycomment on the solution.

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