Question

Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 4 years to maturity, whereas Bond Dave has 18 years to maturity. (Do not round your intermediate calculations.) Requirement 1: (a) If interest rates suddenly rise by 3 percent, what is the percentage change in the price of Bond Sam? (b) If interest rates suddenly rise by 3 percent, what is the percentage change in the price of Bond Dave? Requirement 2: (a) If rates were to suddenly fall by 3 percent instead, what would the percentage change in the price of Bond Sam be then? (b) If rates were to suddenly fall by 3 percent instead, what would the percentage change in the price of Bond Dave be then?

Answer 1