Repricing a bond after a yield jump
A 2-year bond with $100 face pays a 5% annual coupon (so $5 at and $105 at ) and currently trades at par ($100) because its yield equals its 5% coupon. Market yields then jump to 7%. By how many dollars does its price fall? (to two decimals)
Show hints (2)+
- Re-discount both cash flows ($5 and $105) at the new 7% yield.
- Price fall = 100 − (5/1.07 + 105/1.07²).
Answer
Reveal answer →Final answer
3.62 (± 0.02)
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Asked at: Multi-Strategy Quant, Data-Driven Research