BOND PRICING

Suppose a bond has 30 years to maturity; a $1000 face value; a coupon of 5%; and a yield to maturity of 2%. The coupon is paid semi-annually.

• What is the price of this bond?
• If the yield to maturity suddenly rises to 6%, what is the new price of the bond?
• Short response: Over the past six months, 30-year Treasury bond yields have fallen from around 4.4% to 3.9%. All else equal, what impact should this have on 30-year Treasury bond prices? In general, will this change in rates have a greater impact on long-term or short-term bonds? What about low-coupon vs. high-coupon bonds? Why?