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Both Bond Sam and Bond Dave have 7 percent coupons, makesemiannual payments, and are priced at par value. Bond Sam has 3years to maturity, whereas Bond Dave has 17 years to maturity. (Donot round your intermediate calculations.)

Requirement 1: (a) If interest rates suddenly rise by 5 percent,what is the percentage change in the price of Bond Sam? (b) Ifinterest rates suddenly rise by 5 percent, what is the percentagechange in the price of Bond Dave?

Requirement 2: (a) If rates were to suddenly fall by 5 percentinstead, what would the percentage change in the price of Bond Sambe then? (b) If rates were to suddenly fall by 5 percent instead,what would the percentage change in the price of Bond Dave bethen?

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Tod Thiel
Tod ThielLv2
28 Sep 2019
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Both Bond Sam and Bond Dave have 6.5 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam? Of Bond Dave? If rates were suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? Bond Dave? Illustrate your answers by graphing bond prices versus YTM. What does this problem telll you about the interest rate risk of longer-term bonds?

ANSWERS are: change in S = -5%, change in D = -16%, for rate decrease change in S = 5% and change in D = 21%! Not sure how to do this!

C. Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has has 3 years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent,

C.1 what is the percentage change in the price of Bond Sam?

C.2. Of Bond Dave?

C.3. If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then?

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