In: Finance
Both Bond Sam and Bond Dave have 6 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to maturity, whereas bond Dave has 18 years to maturity.
a. If the interest rate suddenly rises by 5 percent, what is the percent change in the price of Bond Sam?
b. If interest rates suddenly rise by 5 percent, what is the percent change in the price of Bond Dave?
c. If rate were to suddenly fall by 5 percent instead, what would the percent change in the price of Bond Sam be then?
d. If rate were to suddenly fall by 5 percent instead, what would the percent change in the price of Bond Dave be then?