Bond J has a coupon rate of 4.6 percent. Bond S has a coupon rate of 14.6 percen
ID: 2740255 • Letter: B
Question
Bond J has a coupon rate of 4.6 percent. Bond S has a coupon rate of 14.6 percent. Both bonds have nine years to maturity, make semiannual payments, and have a YTM of 10.2 percent.
If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)
Bond J:
Bond S:
If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Bond J:
Bond S:
Requirement 1:If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)
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 round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Bond J:
Bond S:
Explanation / Answer
Requirement 1:
Bond J:
Value of the bond J is $675/-
If interest rate increased by 2%, percentage change in the value of the bond is
Value of the bond is $ 791
Changes in the bond is $116 ($791 -$675)
Percentage change = $116 / $791 *100 = 14.66%
Bond S:
Value of the bond J is $1255/-
If interest rate increased by 2%, percentage change in the value of the bond is
Value of the bond is $ 1,371
Changes in the bond is $116 ($1,371 -$1,255)
Percentage change = $116 / $1,371 *100 = 8.46%
Requirement 2:
Bond J:
Value of the bond J is $675/-
If interest rate decreased by 2%, percentage change in the value of the bond is
Value of the bond is $ 559
Changes in the bond is $116 ($559 -$675)
Percentage change = -$116 / $559 *100 = -20.75%
Bond S:
Value of the bond J is $1255/-
If interest rate decreased by 2%, percentage change in the value of the bond is
Value of the bond is $ 1,139
Changes in the bond is -$116 ($1,139 -$1,255)
Percentage change = -$116 / $1,139 *100 = -10.18%