Using present value bond valuation techniques, calculate the exact price of the bond after the interest rate increase of 20 basis points.
A)$1,007.94.
B)$992.02.
C)$992.06.
D)$996.01.
E)$1,003.99. [Refer to: 9-102]

Question

Quizplus · Accepted Answer

The exact price of a bond after an interest rate increase can be calculated using the present value bond valuation formula, which takes into account the future cash flows (coupon payments and the principal repayment) discounted back to the present value at the new interest rate. An increase of 20 basis points in the interest rate would decrease the present value of these future cash flows, leading to a decrease in the bond's price. The correct answer, $992.06, reflects this calculation accurately.

Using Present Value Bond Valuation Techniques, Calculate the Exact Price