Both bond A and bond B have 8 percent coupons and are priced at par value. Bond A has 5 years to maturity, while bond B has 18 years to maturity.

a.

If interest rates suddenly rise by 2.4 percent, what is the percentage change in price of bond A and bond B? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Bond A	%
Bond B	%

b.	If interest rates suddenly fall by 2.4 percent instead, what would be the percentage change in price of bond A and bond B? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Bond A	%
Bond B	%

References

eBook & Resources

WorksheetDifficulty: 2 MediumSection: 10.4 Interest Rate Risk and Malkiels Theorems

Problem 10-17Learning Objective: 10-03 Interest rate risk and Malkiels theorems.

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