Question

Both Bond Bill and Bond Ted have 5.8 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 25 years to maturity.
a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

		Price
	YTM	Bond Bill	Bond Ted
	5.80%	1000	1000
PART a	7.800%	$918.49	$781.45
	% change	-8.15%	-21.86%
Part b	3.800%	$1,090.30	$1,320.95
	% change	9.03%	32.09%

WORKINGS