Question

QUESTION

1. Bond A has 4 years left to maturity and Bond B has 8 years left to maturity. They both have a 6% coupon rate, pays semiannually, and yield is 5%. Calculate the percentage change in the price of each bond if interest rates suddenly increased by 2%.

   		A: -7.27%, B: -13.38%
   		A: -6.78%, B: -11.80%
   		A: 7.27%, B 13.38%
   		A: 6.78%, B: 11.80%
   		None of the above

  

QUESTION

1. What does the problem above tell you about interest rate risk?

   		As interest rates increase, bond prices decrease.
   		As interest rates decrease, bond prices increase.
   		Bond prices are more sensitive when there is a longer time to maturity.
   		Bond prices are more sensitive when there is a lower coupon rate.
   		None of the above.

QUESTION

1. Bond C has a 5% coupon rate and Bond D has a 10% coupon rate. They both bonds are 8 years from maturity, pays annually, and the yield is 5%. Calculate the percentage change in the price of each bond if interest rates suddenly decreased by 1.5%.

   		C: 10.31%, D: 9.34%
   		C: -10.31%, D: -9.34%
   		C: 9.35%, D: 8.55%
   		C: -9.35%, D: -8.55%
   		None of the above

QUESTION

1. What does the problem above tell you about interest rate risk?

   		As interest rates increase, bond prices decrease.
   		As interest rates decrease, bond prices increase.
   		Bond prices are more sensitive when there is a longer time to maturity.
   		Bond prices are more sensitive when there is a lower coupon rate.
   		None of the above.

Answer 1