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Both Bond A and Bond B have 6% coupons and are prices at par value. Bond A has 5 years to maturity, while Bond B
Both Bond A and Bond B have 6% coupons and are prices at par value. Bond A has 5 years to maturity, while Bond B has 15 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in price of Bond A? Of Bond B? If rates were to suddenly fall by 2% instead, what would the percentage change in price of Bond A be now? Of Bond B? IllustrateYour answers by graphing bond prices. versus YTM. What does this problem tell you about the interest rate risk of longer -term bonds?
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