Laurel, Inc., and Hardy Corp. both have 12 percent coupon bonds outstanding, wit
ID: 2660422 • Letter: L
Question
Laurel, Inc., and Hardy Corp. both have 12 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has 6 years to maturity, whereas the Hardy Corp. bond has 14 years to maturity. If interest rates suddenly rise by 3 percent, the percentage change in the price of Bonds Laurel, Inc., and Hardy Corp. is percent and percent, respectively.
Laurel, Inc., and Hardy Corp. both have 12 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has 6 years to maturity, whereas the Hardy Corp. bond has 14 years to maturity. If interest rates suddenly rise by 3 percent, the percentage change in the price of Bonds Laurel, Inc., and Hardy Corp. is percent and percent, respectively.
Explanation / Answer
Here is what I solved before. Please substitute the figures as per your question. Let me know if you want some clarification on it. Please rate 5 stars if I succeeded in helping you.Laurel, Inc., and Hardy Corp. both have 13 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has 2 years to maturity, whereas the Hardy Corp. bond has 12 years to maturity. If interest rates suddenly rise by 2 percent, the percentage change in the price of Bonds Laurel, Inc., and Hardy Corp. is ______ percent and _______ percent, respectively. (Negative amounts should be indicated by a minus sign. Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16)
Here, par value of the bond is $1,000. Cupon rate is 13%. Coupon payment is 13%*1,000 = 0.13*1,000 = $130. But, here semianually interest payment, the coupon rate will be half. Coupon paymenet is $65 Interest rate are raised by 2% then, YTM is 13+2 = 15% in both cases. Calculation of bond price for Laurel, inc: Here coupon payment is $65. YTM is 15%/2 = 7.5% because semianually. maturity is = 4(2*2) By using excel spread sheet we can calcuate the bond price. Inset PV in formula bar and take the values as, Rate 7.5%, PMT = 65, FV=1,000. By enter we can get the bond value as $966.51 The bond price would fall to $966.51. % of change in bond price is = ($966.51 - $1,000)/$1,000 = (-33.49)/1000 = -3.35 Calcualation of bond price for Hardy corp: YTM is 7.5 Coupon payment is $65 Period to maturity is 24 (12*2) By using excel the bond price is = $922.67 % change in bond price is = (922.67 - $1,000)/$1,000 =-77.33/1000 = -7.73 Therefore, Percentage change in Laurel bond is -3.35 Percentage change in Handy corp is -7.73
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.