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Both Bond Tom and Bond Jerry have 4% coupons, make semiannual payments, and have YTM of 3%. Bond Tom has two years to maturity, whereas
Both Bond Tom and Bond Jerry have 4% coupons, make semiannual payments, and have YTM of 3%. Bond Tom has two years to maturity, whereas Bond Jerry has 30 years to maturity. If the interest rates (YTM) suddenly rise by 2 percent point to 5%, what is the percentage change in the price of Bond Tom and Bond Jerry? Based on your answer, what can you say about the relationship between the interest rate risk and the time to maturity? Please show calculations.
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