question 7

Ex. Consider how prices (p) of 8% annual coupon bonds of different maturity change in response to a 19 increase in market interest rates from 8% to 9%: T (years) ytm (%) 1 10 20 8 $1,000 $1,000 $1,000 9 $990.83 $935.82 $908.71 Ap/p (%) -0.92 -6.42 -9.13 Now compare it to the corresponding price changes for zero coupon bonds: T (years) ytm (%) 1 10 20 8 $925.93 $463.19 $214.55 9 $917.43 $422.41 $178.43 Ap/p (%) -0.92 -8.8 -16.83 Ex. Consider how prices (p) of 8% annual coupon bonds of different maturity change in response to a 19 increase in market interest rates from 8% to 9%: T (years) ytm (%) 1 10 20 8 $1,000 $1,000 $1,000 9 $990.83 $935.82 $908.71 Ap/p (%) -0.92 -6.42 -9.13 Now compare it to the corresponding price changes for zero coupon bonds: T (years) ytm (%) 1 10 20 8 $925.93 $463.19 $214.55 9 $917.43 $422.41 $178.43 Ap/p (%) -0.92 -8.8 -16.83