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?
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?
Related questions
Both Bond Sam and Bond Dave have 10 percent coupons, makesemiannual payments, and are priced at par value. Bond Sam has 5years to maturity, whereas Bond Dave has 18 years to maturity.(Do not round your intermediate calculations.) |
| Requirement 1: |
| (a) | If interest rates suddenly rise by 2 percent, what is thepercentage change in the price of Bond Sam? |
| (Click to select)7.50%-7.34%-7.36%-7.94%8.13% |
| (b) | If interest rates suddenly rise by 2 percent, what is thepercentage change in the price of Bond Dave? |
| (Click to select)-14.60%15.90%18.93%-17.12%-14.62% |
| Requirement 2: |
| (a) | If rates were to suddenly fall by 2 percent instead, what wouldthe percentage change in the price of Bond Sam be then? |
| (Click to select)-7.31%7.50%8.09%8.16%8.11% |
| (b) | If rates were to suddenly fall by 2 percent instead, what wouldthe percentage change in the price of Bond Dave be then? |
| (Click to select)-14.57%18.96%15.90%18.91%18.89% |
rev: 09_18_2012
