Question
both bond Sam and bond Dave have 7.3 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to
both bond Sam and bond Dave have 7.3 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percent change in price of Bond Sam? of Bond Dave? If rates were suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? Of Bond Dave? What does this problem tell you about interest rate risk of longer term debt? Could you post using a Financial Calculator, thanks.
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