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Homework answers / question archive / What is the percentage change in price for a zero coupon bond if the yield changes from 7
What is the percentage change in price for a zero coupon bond if the yield changes from 7.5?% to 5.5?%? The bond has a face value of ?$1,000 and it matures in 11 years. Use the price determined from the first? yield, 7.5?%, as the base in the percentage calculation.
Price of Zero coupon bond when yield is 5.5%;
present value of bond = Maturity Value /(1+yeild rate)^12
=$1000 /(1+5.5%)^11
=$ 1,000/ 1.80209
=$ 554.91
present value of bond when yield 7.5%;
present value of bond = Maturity Value /(1+yeild rate)^12
=$1000 /(1+7.5%)^11
=$1,000 /(1.075)^11
=$ 1,000/ 2.21561
=$ 451.34
Change in price of zero coupon bond when yield changes 7.5% to 5.5%;
=(change in price / price when yield 7.5%) X 100%
=($ 554.91-451.34/451.34) X 100
=( 103.57/451.34 ) X100
= 22.95%
