Consider a one-year maturity, $100,000 face value bond that pays a 6 percent fixed coupon annually. If the bond is selling at par, what is the percentage price change for the bond if interest rates increase 50 basis points from 6 percent

The price decrease by 0.469%

We determiante the new market value of the bond:

In one year we are going to receive:

100,000 maturity

and 6,000 interest

We discount this at 6.50% (6% plus 50 points which means half of a percentage) to get the present value

Maturity  $106,000.00

time  1.00

rate  0.06500

PV   99,530.5164

at par it would sale at 100,000

now it is being sold at 99,530.5164

Now, we divide each term:

99,53.5134 - 100,000 / 100,000 =

-469.4836 / 100,000 =  -0.00469  

The price decrease by 0.469 percent

How old are you?

Explanation:

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