Please show all work Both bond A and bond B have 9.4 percent coupons and are pri

Question

Please show all work

Both bond A and bond B have 9.4 percent coupons and are priced at par value. Bond A has 7 years to maturity, while bond B has 20 years to maturity. a. If interest rates suddenly rise by 2 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.) Bond A % Bond B % b. If interest rates suddenly fall by 2 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.) Bond A % Bond B %

Explanation / Answer

PV calculations of inflows of Bond A (Assumed Face Value $ 1000) Year Amount @ coupon rate at 9.4 % PV of coupon rate discounted @ 10% assumed $ Amount @ coupon rate at 11.4 % PV of coupon rate discounted @ 10% assumed $ Amount @ coupon rate at 7.4 % PV of coupon rate discounted @ 10% assumed $ 1 94 85.45454545 114 103.6363636 74 67.27272727 2 94 77.68595041 114 94.21487603 74 61.15702479 3 94 70.62359128 114 85.6498873 74 55.59729527 4 94 64.2032648 114 77.86353391 74 50.5429957 5 94 58.36660437 114 70.78503083 74 45.94817791 6 94 53.06054943 114 64.35002803 74 41.77107082 7 1094 561.3949813 1114 571.6581437 1074 551.131819 PV's of cash flows till maturity of 7 years 970.7894871 1068.157863 873.4211107 971 1068 873 % of change 9.989701339 -10.09268795 9.99% -10.09% Assumptioms: FV of Bond = $ 1000 Discounted @ 10% PV calculations of inflows of Bond B (Assumed Face Value $ 1000) Year Amount @ coupon rate at 9.4 % PV of coupon rate discounted @ 10% assumed $ Amount @ coupon rate at 11.4 % PV of coupon rate discounted @ 10% assumed $ Amount @ coupon rate at 7.4 % PV of coupon rate discounted @ 10% assumed $ 1 94 85.45454545 114 103.6363636 74 67.27272727 2 94 77.68595041 114 94.21487603 74 61.15702479 3 94 70.62359128 114 85.6498873 74 55.59729527 4 94 64.2032648 114 77.86353391 74 50.5429957 5 94 58.36660437 114 70.78503083 74 45.94817791 6 94 53.06054943 114 64.35002803 74 41.77107082 7 94 48.23686311 114 58.50002548 74 37.97370075 8 94 43.85169374 114 53.18184134 74 34.52154614 9 94 39.86517613 114 48.34712849 74 31.38322376 10 94 36.24106921 114 43.95193499 74 28.53020342 11 94 32.94642655 114 39.95630454 74 25.93654856 12 94 29.95129686 114 36.32391322 74 23.57868051 13 94 27.2284517 114 33.02173929 74 21.4351641 14 94 24.7531379 114 30.01976299 74 19.48651282 15 94 22.50285264 114 27.29069363 74 17.71501165 16 94 20.45713876 114 24.80972148 74 16.10455605 17 94 18.59739888 114 22.55429225 74 14.6405055 18 94 16.90672625 114 20.50390205 74 13.30955045 19 94 15.36975114 114 18.63991095 74 12.09959132 20 1094 162.6161291 1114 165.5890016 1074 159.6432565 PV's of cash flows till maturity of 20 years 948.9186177 1119.189892 778.6473433 949 1119 779 % of change 17.91359326 -17.91359326 17.92% -17.92% Assumptioms: FV of Bond = $ 1000 Discounted @ 10% Answer: Bond A Bond B A (for 2% increase) 9.99% 17.92% B (for 2% decrease) -10.09% -17.92%

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