Both Bond Bill and Bond Ted have 11 percent coupons, make semiannual payments, a

Question

Both Bond Bill and Bond Ted have 11 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 3 years to maturity, whereas Bond Ted has 20 years to maturity.

If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds?(Do not round intermediate calculations. 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 round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

Both Bond Bill and Bond Ted have 11 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 3 years to maturity, whereas Bond Ted has 20 years to maturity.

Explanation / Answer

Calculations:

I. Price of Bond

Formula Used Present Value of Interest Payments = c

Bond price Percent change Bill Ted Bill Ted Initial scenario 1000 1000 inc by 2% 951.59 858.545 -0.04841 -0.14146 decrease by 2% 1051.579 1184.016 0.051579 0.184016

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