Interest rate risk and bond price

changes Apex

Corp. has two outstanding bond issues. One issue consists of

9%

annual coupon bonds and the other issue consists of zero-coupon bonds. For each bond issue, calculate the bond prices and percentage change in prices when the required rate of return changes from

9%

to

10%.

a.Ten years to maturity and the required rate of return goes from

9%

to

10%.

b.Twenty years to maturity and the required rate of return goes from

9%

to

10%.

c.Ten years to maturity and the required rate of return goes from

9%

to

8%.

d.Twenty years to maturity and the required rate of return goes from

9%

to

8%.

e.Compare and contrast your answers for parts a through d and comment on your observations