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Part 2 : As an MBA student, you are curious about the inverse relationship between bond prices and interest rate. More specifically, you want to
Part :
As an MBA student, you are curious about the inverse relationship between bond prices and interest rate.
More specifically, you want to figure out how interest rate sensitivity affects bonds of varying maturities. So
you decide to analyze two bond issues: Bond S and Bond L Both bond S and Bond L have coupons, make
semiannual payments, and are priced at par value meaning their PV is $ Bond S matures in years,
whereas Bond L matures in years. Given this information:
a If interest rates suddenly rise by what is the percentage change in the price in both bonds S and
L points
b If rates suddenly fall by instead, what would the percentage change in the price of both bond S
and L points
c What does this problem tell you about the interest rate risk of longterm bonds? pointsBond Price Quotes:
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