Question

Both Bond Sam and Bond Dave have 6 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 4 years to maturity, whereas Bond Dave has 14 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam? • 6.83% • -6.71% • -6.73% • -7.22% If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Dave? • -16.66% • -19.99% • -16.64% • 17.55% If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? • -6.68% • 7.33% • 6.83% • 7.31% If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Dave be then? • 21.28% • 17.55% • 21.26% • -16.61%

Answer 1

1.
=PV((6%+2%)/2,4*2,-6%*1000/2,-1000)/1000-1=-6.73274487495041%

2.
=PV((6%+2%)/2,14*2,-6%*1000/2,-1000)/1000-1=-16.6630632179987%

3.
=PV((6%-2%)/2,4*2,-6%*1000/2,-1000)/1000-1=7.32548144049445%

4.
=PV((6%-2%)/2,14*2,-6%*1000/2,-1000)/1000-1=21.281272355265%