Question
Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to
Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 16 years to maturity. [Instructor's note: we aren't covering this in this class but when a bond is priced at par, it costs $1000 and the 6-month discount rate is the same as the 6-month coupon rate, which is the annual coupon rate divided by two.] If interest rates suddenly rise by 2 percentage points (New YTM=Old YTM + 2.00%) , what is the percentage change in the price of Bond Sam and Bond Dave? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) Percentage change in price of Bond Sam % Percentage change in price of Bond Dave % If rates were to suddenly fall by 2 percentage points instead, what would be the percentage change in the price of Bond Sam and Bond Dave? (Round your answers to 2 decimal places. (e.g., 32.16)) Percentage change in price of Bond Sam % Percentage change in price of Bond Dave
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