The Faulk Corp. has a bond with a coupon rate of 5.7 percent outstanding. The Gonas Company

Question:

The Faulk Corp. has a bond with a coupon rate of 5.7 percent outstanding. The Gonas Company has a bond with a coupon rate of 12.3 percent outstanding. Both bonds have 14 years to maturity, make semiannual payments, and have a YTM of 9 percent. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? What if interest rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower coupon bonds?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...