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5. Interest Rate Risk Collapse . Both Bonds A and B are priced at par since their YTMs are the same as their coupon rate
5. Interest Rate Risk Collapse . Both Bonds A and B are priced at par since their YTMs are the same as their coupon rate of 7%. What happens to their prices if interest rate in the market rises by 2%? What if the interest rate falls by 2%? Compute the prices in $ and also the percentage change.
Bond A: | Bond B: | |||
Coupon rate | 7% | Coupon rate | 7% | |
Settlement date | 1/1/2000 | Settlement date | 1/1/2000 | |
Maturity date | 1/1/2003 | Maturity date | 1/1/2020 | |
Redemption (% of par) | 100 | Redemption (% of par) | 100 | |
# of coupons per year | 2 | # of coupons per year | 2 | |
YTM | 7% |
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