Both Bond J and Bond K have 7.3 percent coupons, make semiannual payments, and are priced at
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Question:
Both Bond J and Bond K have 7.3 percent coupons, make semiannual payments, and are priced at par value of $1,000. Bond J has three years to maturity, whereas Bond K has 20 years to maturity.
- What is the YTM for each bond?
- If interest rates suddenly rise by 2 percentage points, what is the new price of Bonds J and Bond K respectively? What is the percentage change in price for each bond?
- If rates were to suddenly fall by 2 percentage instead, what is the new price of Bonds J and Bond K respectively? What is the percentage change in price for each bond?
- In one sentence, what is the relationship between changes in interest rate and the impact to pricing for bonds of different maturities?
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