Bond J is a 5.0 percent coupon bond. Bond S is a 15.0 percent coupon bond. Both
ID: 2695539 • Letter: B
Question
Bond J is a 5.0 percent coupon bond. Bond S is a 15.0 percent coupon bond. Both bonds have eight years to maturity, make semiannual payments, and have a YTM of 11.0 percent. Requirement 1: If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (Do not include the percent signs (%). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).) Percentage change in price Bond J % Bond S % Requirement 2: If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds? (Do not include the percent signs (%). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Percentage change in price Bond J % Bond S %Explanation / Answer
we find the following market prices of Bond J and K Bond J 4% $1000 yield of 8% with 9 years to maturity Price = $746.81 Bond K 12% $1000 yield of 8% with 9 years to maturity Price = $1253.19 Bond J 4% $1000 yield of 10% with 9 years to maturity Price = 649.31 Bond K 12% $1000 yield of 10% with 9 years to maturity Price = 1116.9 Bond J 4% $1000 yield of 6% with 9 years to maturity Price = 862.46 Bond K 12% $1000 yield of 6% with 9 years to maturity Price = 1412.61 Change in YTM from 8% to 10% Bond J (649.31 - 746.81)/746.81 = -13.05% Bond K (1116.9 - 1253.19)/1253.19 = -10.86% Change in YTM from 8% to 6% Bond J (862.46 - 746.81)/746.81 = 15.48% Bond K (1412.61 -1253.19)/1253.19 = 12.72%