Question
Consider the following bonds: Bond Coupon Rate (annual payments) Maturity (years) A 0% 16 B 0% 8 C 4% 16 D 7% 8 a) What
Consider the following bonds:
Bond Coupon Rate (annual payments) Maturity (years) A 0% 16 B 0% 8 C 4% 16 D 7% 8
a) What is the percentage change in the price of each bond if its yield to maturity falls from 6% to 5%? b) Which of the bonds A-D is most sensitive to a 1% drop in interest rates from 6% to 5% and why? Which bond is least sensitive? Provide an intuitive explanation for your answer.
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Personal Financial Planning
Authors: Lawrence J. Gitman, Michael D. Joehnk, Randy Billingsley
12th Edition
1439044473, 978-1439044476
