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
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.
a.What is the YTM for each bond?
b.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?
c.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?
d.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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Financial Accounting Plus
Authors: Robert Libby, Patricia Libby, Daniel Short
7th Edition
0077480015, 9780077480011
