Both bond A and bond B have 7.2 percent coupons and are priced at par value. Bon

Question

Both bond A and bond B have 7.2 percent coupons and are priced at par value. Bond A has 6 years to maturity, while bond B has 16 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 7.2 percent coupons and are priced at par value. Bond A has 6 years to maturity, while bond B has 16 years to maturity.

Explanation / Answer

Interest rate Bond A price % change Bond B price % change 7.20% $     1,000.00 $    1,000.00 1) If interest rate rise 8.80% $        927.80 -7.22% $       865.34 -13.47% 2) If interest rate falls 5.60% $     1,079.68 7.97% $    1,166.23 16.62%

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