Both bond A and bond B have 9 percent coupons and are priced at par value. Bond

Question

Both bond A and bond B have 9 percent coupons and are priced at par value. Bond A has 5 years to maturity, while bond B has 20 years to maturity.

If interest rates suddenly rise by 1.6 percent, what is the percentage change in price of bond A and bond B? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

If interest rates suddenly fall by 1.6 percent instead, what would be the percentage change in price of bond A and bond B? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Both bond A and bond B have 9 percent coupons and are priced at par value. Bond A has 5 years to maturity, while bond B has 20 years to maturity.

Explanation / Answer

Bond ( Let the Maturity Amount is 1000) A B Maturity Period n 5.00 20.00 Coupon Rate 9.00 9.00 Price when coupon rate 9% 1450.00 2800.00 Price coupon rate 10.6% 1530.00 3120.00 Price coupon rate 7.4% 1370.00 2480.00 Change in Price of bonds at 10.6% 5.52 11.43 Change in Price of bonds at 7.4% -5.52 -11.43

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