Both Bond Bill and Bond Ted have 10.2 percent coupons, make semiannual payments,

Question

Both Bond Bill and Bond Ted have 10.2 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 4 years to maturity, whereas Bond Ted has 21 years to maturity.

If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (Do not include the percent signs (%). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)

If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not include the percent signs (%). Round your answers to 2 decimal places (e.g., 32.16).)

Both Bond Bill and Bond Ted have 10.2 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 4 years to maturity, whereas Bond Ted has 21 years to maturity.

Explanation / Answer

1. Bill Price is 938.15 so it decreases (938.15-1000)/1000= -6.19%

Ted Price is 849.70 so it decreases (849.70-1000(/1000= -15.03%

Bogus!

2. Bill price is 1067.05 so it increases (1067.15-1,000)/1,000= 6.72%

Ted price is 1198.79 so it increases (1198.79-1000)/1000= 19.88%

Excellent!

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