Interest Rate Risk [LO2]Bond J has a coupon rate of 3 percent. Bond K has a coupon rate of 9 percent. Both bonds have 19 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?

Additional Problems:

1.What is the price of a $1,000 par value bond with an 8% coupon rate paid annually, if the bond is priced to yield 8% and has 9 years to maturity?

2.What would be the price of the bond in #1 if the yield decreased to 6%?

3.What would be the price of the bond in #1 if the yield rose to 10% and was callable at 110% of par in 4 years?

4.What is the yield to maturity for a Zero Coupon Bond that has 15 years left to maturity and is selling for $209?