Bond J has a coupon rate of 3 percent and Bond K has a coupon rate of 9 percent.
ID: 2820765 • 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? (A negative answer 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.) a. b. a. Bond J Bond K b. Bond J Bond K 22.38 %Explanation / Answer
PRICE OF BONDS price of bond = sum of present values of future cash flows Present Value = Future value/[(1+(r/m))^mt] r is the interest rate that is 6% t is the year m is the compounding period that is 2 BOND J Face value 1000 Coupon 30 Semiannual coupon 15 semi-annual yield to maturity 0.03 mt 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 cash flow 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 1030 present value 29.13 28.28 27.45 26.65 25.88 25.12 24.39 23.68 22.99 22.32 21.67 21.04 20.43 19.83 19.26 18.70 18.15 17.62 17.11 16.61 16.13 15.66 15.20 14.76 14.33 13.91 13.51 13.11 12.73 12.36 12.00 11.65 11.31 377.03 Price of bond 1000.00 BOND K Face value 1000 Coupon 90 Semiannual coupon 45 semi-annual yield to maturity 0.03 mt 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 cash flow 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 45 1045 present value 43.69 42.42 41.18 39.98 38.82 37.69 36.59 35.52 34.49 33.48 32.51 31.56 30.64 29.75 28.88 28.04 27.23 26.43 25.66 24.92 24.19 23.49 22.80 22.14 21.49 20.87 20.26 19.67 19.10 18.54 18.00 17.48 16.97 382.52 Price of bond 1316.98 a) calculate the price of the bonds in the same way when r = 8% When r = 8% Price of bond J 815.89 % change in price of bond -22.57% Price of bond K 1092.06 % change in price of bond -17.08% b) calculate the price of the bonds in the same way when r = 4% When r = 8% Price of bond J 1244.99 % change in price of bond 24.50% Price of bond K 1612.46 % change in price of bond 22.44% a) When interest rates rise by 2% percentage change in price of bond BOND J -22.57% BOND K -17.08% b) When interest rates fall by 2% percentage change in price of bond BOND J 24.50% BOND K 22.44% Please send the union local school district question and the question after that as separate questions.