In: Finance
Show all your work (use of formula, etc.) in solving the problems. You still need to show your work even if you use the financial calculator to get the answers.
4. Bond Q is a 4 percent coupon bond. Bond R is an 6 percent coupon bond. Both bonds have 15 years to maturity, make annual coupon payments, and have a YTM of 6 percent. If interest rate (YTM) changes from 6 percent to 8 percent, what is the percentage price change of these bonds? What if the YTM suddenly falls from 6 percent to 4 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?