Bond J is a 4 percent coupon bond. Bond K is an 8 percent coupon bond. Both bond

Question

Bond J is a 4 percent coupon bond. Bond K is an 8 percent coupon bond. Both bonds have 10 years to maturity and have a YTM of 7 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) Bond J % Bond K % If interest rates suddenly fall by 2 percent, what is the percentage price change of these bonds? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

Solution.

1. If YTM 9 %.

2. IF interest rate 5%

Normal Case Bond J Amount Table value PV Pv of coupan annuity                40.00                  7.02                    280.94 PV of Maturity amount          1,000.00                  0.51                    508.30 Bond price                    789.24 Bond K Amount Table value PV Pv of coupan annuity                80.00                  7.02                    561.88 PV of Maturity amount          1,000.00                  0.51                    508.30 Bond price                 1,070.18

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