Bond J is a 3 percent coupon bond. Bond K is a 9 percent coupon bond. Both bonds
ID: 2624408 • Letter: B
Question
Bond J is a 3 percent coupon bond. Bond K is a 9 percent coupon bond. Both bonds have 12 years to maturity, make semiannual payments, and have a YTM of 6 percent.
If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? (Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)))
What if rates suddenly fall by 2 percent instead? (Round your answers to 2 decimal places. (e.g., 32.16))
Bond J is a 3 percent coupon bond. Bond K is a 9 percent coupon bond. Both bonds have 12 years to maturity, make semiannual payments, and have a YTM of 6 percent.
Explanation / Answer
Bond J
3% $1000 yield of 6% with 12 years to maturity
Price = $745.97
Bond K
9% $1000 yield of 6% with 12 years to maturity
Price = $1254.03
Bond J
3% $1000 yield of 8% with 12 years to maturity
Price = 618.83
Bond K
9% $1000 yield of 8% with 12 years to maturity
Price = 1076.23
Bond J
3% $1000 yield of 4% with 12 years to maturity
Price = 905.43
Bond K
9% $1000 yield of 4% with 12 years to maturity
Price = 1472.85
Change in YTM from 6% to 8%
Bond J
(618.83-745.97)/745.97= -17.0435%
Bond K
(1076.23-1254.03)/1254.03 = -14.1782%
Change in YTM from 6% to 4%
Bond J
(905.43-745.97)/745.97= 21.3761%
Bond K
(1472.85-1254.03)/1254.03 =17.4493%