Question
Miller Corp. and Smith Inc. both have 6 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Miller
Miller Corp. and Smith Inc. both have 6 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Miller Corp. bond has 4 years to maturity, whereas the Smith Inc. bond has 19 years to maturity.
a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of both of these bonds?
b. If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be instead?
Do not round intermediate calculations; round the final answers to 2 decimal places. Negative answers should be indicated by a minus sign.
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