One of the risks when investing in bonds is that when interest rates increase (decline) prices of bonds decline (increase). Thus, if interest rates increase , your investments in bonds decline in value. An example: We saw that the price of a S/A 7% IBM bond maturing in 9 years and YTM 2.5%.

What will be the price of the bond in 2 years from now, if the YTM has increased by 3.5% (the YTM is now 6%)?

Multiple Choice

$1,056.5

$1,166.6

$1,215.6

$1,090.3

$1,360.66