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(RWJ Essentials 5ed Ch6 P17) [Interest Rate Risk] Bond X is a 5% coupon bond. Bond Y is a 11% coupon bond. Both bond have

(RWJ Essentials 5ed Ch6 P17) [Interest Rate Risk] Bond X is a 5% coupon bond. Bond Y is a 11% coupon bond. Both bond have eight years to maturity, make semiannual payments, and have a YTM of 7%.

1) If interest rates suddenly rise by 2%, what is the percentage price change of these bonds?

2) What if rates suddenly fall by 2% instead?

answer is

1) The price of X changes from 87.91 to 77.53, so the rate of change in X is -11.80 % The price of Y changes from 124.19 to 111.23, so the rate of change in Y is -10.43 %

2) The price of X changes from 87.91 to 100.00, so the rate of change in X is 13.76 % The price of Y changes from 124.19 to 139.17, so the rate of change in Y is 12.06 %

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