Bond J is a 6 percent coupon bond. Bond K is a 10 percent coupon bond. Both bond
ID: 2777469 • Letter: B
Question
Bond J is a 6 percent coupon bond. Bond K is a 10 percent coupon bond. Both bonds have 15 years to maturity and have a YTM of 6.6 percent.
If interest rates suddenly rise by 2.4 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.)
If interest rates suddenly fall by 2.4 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.)
Bond J is a 6 percent coupon bond. Bond K is a 10 percent coupon bond. Both bonds have 15 years to maturity and have a YTM of 6.6 percent.
Explanation / Answer
Bond J is a 6 percent coupon bond. Bond K is a 10 percent coupon bond. Both bonds have 15 years to maturity and have a YTM of 6.6 percent.
Bond J
Current Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the semi annual period) =15*2 = 30
PV (indicates the price) = ?
PMT (indicate the semi annual payment) = 1000*6%*1/2 = 30
FV (indicates the face value) = 1000
Rate (indicates Half year YTM) = 6.6%*1/2 = 3.3%
Current Bond Value = pv( 3.3%,30,30,1000)
Current Bond Value = $ 943.41
Bond K
Current Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the semi annual period) =15*2 = 30
PV (indicates the price) = ?
PMT (indicate the semi annual payment) = 1000*10%*1/2 = 50
FV (indicates the face value) = 1000
Rate (indicates Half year YTM) = 6.6%*1/2 = 3.3%
Current Bond Value = pv( 3.3%,50,30,1000)
Current Bond Value = $ 927.02
a.If interest rates suddenly rise by 2.4 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 Value = pv(rate, nper,pmt,fv)
Nper (indicates the semi annual period) =15*2 = 30
PV (indicates the price) = ?
PMT (indicate the semi annual payment) = 1000*6%*1/2 = 30
FV (indicates the face value) = 1000
Rate (indicates Half year YTM) = (6.6%+2.4%)*1/2 = 4.5%
Bond Value = pv( 4.5%,30,30,1000)
Bond Value = $ 755.67
Percentage of price change = (Expected Bond Value - Current Bond Value)/ Current Bond Value
Percentage of price change = (755.67-943.41)/943.41
Percentage of price change = - 19.90%
Bond K
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the semi annual period) =15*2 = 30
PV (indicates the price) = ?
PMT (indicate the semi annual payment) = 1000*10%*1/2 = 50
FV (indicates the face value) = 1000
Rate (indicates Half year YTM) = (6.6%+2.4%)*1/2 = 4.5%
Bond Value = pv(4.5%,50,30,1000)
Bond Value = $ 703.57
Percentage of price change = (Expected Bond Value - Current Bond Value)/ Current Bond Value
Percentage of price change = (703.57-927.02)/927.02
Percentage of price change = - 24.10%
b.If interest rates suddenly fall by 2.4 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.)
Bond J
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the semi annual period) =15*2 = 30
PV (indicates the price) = ?
PMT (indicate the semi annual payment) = 1000*6%*1/2 = 30
FV (indicates the face value) = 1000
Rate (indicates Half year YTM) = (6.6%-2.4%)*1/2 = 2.1%
Bond Value = pv( 2.1%,30,30,1000)
Bond Value = $ 1198.82
Percentage of price change = (Expected Bond Value - Current Bond Value)/ Current Bond Value
Percentage of price change = (1198.82-943.41)/943.41
Percentage of price change = 27.07%
Bond K
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the semi annual period) =15*2 = 30
PV (indicates the price) = ?
PMT (indicate the semi annual payment) = 1000*10%*1/2 = 50
FV (indicates the face value) = 1000
Rate (indicates Half year YTM) = (6.6%-2.4%)*1/2 = 2.1%
Bond Value = pv(2.1%,50,30,1000)
Bond Value = $ 1276.96
Percentage of price change = (Expected Bond Value - Current Bond Value)/ Current Bond Value
Percentage of price change = (1276.96-927.02)/927.02
Percentage of price change = 37.75%