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Bond A has a coupon rate of 3 percent. Bond B has a coupon rate of 9 percent. Both bonds have 14 years to maturity,
Bond A has a coupon rate of 3 percent. Bond B has a coupon rate of 9 percent. Both bonds have 14 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent (YTM becomes 8 percent), what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?
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