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Both Bond Sam and Bond Dave have 6.5 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to
Both Bond Sam and Bond Dave have 6.5 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam? Of Bond Dave? Ifrates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? Of Bond Dave? All bond price answers should be dollar prices. Bond Sam Coupon rate Settlement date Maturity date Redemption (% of par) # of coupons per year 6.5% 1/1/2000 1/1/2003 100 2 Bond Dave: Coupon rate Settlement date Maturity date Redemption (% of par) # of coupons per year 6.5% 1/1/2000 1/1/2020 100 2 Par value for both bonds $ Current YTM New YTM New YTM 1,000 6.5% 8.5% 4.5% Price at current YTM: Price of Bond Sam Price of Bond Dave Price if YTM increases: Price of Bond Sam Price of Bond Dave % change in Bond Sam % change in Bond Dave Price if YTM decreases: Price of Bond Sam Price of Bond Dave % change in Bond Sam % change in Bond Dave
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