Sonia is based in the U.S. and she would like to invest in an Australian corporation to diversify her portfolio. Currently the Australian corporation is issuing two bonds in the U.S. market:

• Bond ABC denominated in USD
• Bond XYZ denominated in AUD
  1. Assume that bonds X, T and U all have the same maturity.

Based on the table below, what pattern do you observe in the estimated vs. actual percentage changes in bond price when interest rate changes? What is the best terminology to describe this pattern (use terminology covered in this unit) and what relationship between bond prices and interest rates does this pattern imply. Please explain your answers.

	Estimated percentage change in price if interest rates change by:		Actual percentage change in price if interest rates change by:
	-30 basis points	+30 basis points	-30 basis points	+30 basis points
Bond X	+12%	-9%	+12.12%	-8.88%
Bond T	+9%	-6%	+9.05%	-5.95%
Bond U	+11%	-8%	+11.10%	-7.90%

1. B. Assume bonds X, T and U all have the same maturity.

Based on the information in the table below, rank these three bonds by their coupon rates (no calculation is necessary). Where rank = 1 is highest coupon. You must justify your answers based on the information given in the table below.

	Estimated percentage change in price if interest rates change by:		Actual percentage change in price if interest rates change by:
	-30 basis points	+30 basis points	-30 basis points	+30 basis points
Bond X	+12%	-9%	+12.12%	-8.88%
Bond T	+9%	-6%	+9.05%	-5.95%
Bond U	+11%	-8%	+11.10%	-7.90%