Bond J has a coupon rate of 3 percent and Bond K has a coupon rate of 9 percent.
ID: 2712446 • Letter: B
Question
Bond J has a coupon rate of 3 percent and Bond K has a coupon rate of 9 percent. Both bonds have 17 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 amounts should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
What if rates suddenly fall by 2 percent instead? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Change in bond prices Current price: Bond J $ 683.02 PV(3%,34,15,1000)*-1 Bond K $ 1,316.98 PV(3%,34,45,1000)*-1 If interest rate rise by 1.2% Bond J $ 539.72 -20.98% PV(4%,34,15,1000)*-1 Bond K $ 1,092.06 -17.08% PV(4%,34,45,1000)*-1 If interest rate fall by 1.2% Bond J $ 877.51 28.47% PV(2%,34,15,1000)*-1 Bond K $ 1,612.46 22.44% PV(2%,34,45,1000)*-1