. Koppen Corporation has two bond issues outstanding, each with a par value of $

Question

. Koppen Corporation has two bond issues outstanding, each with a par value of $1,000. Information about each is listed below. Suppose market interest rates rise 1 percentage point across the yield curve. What will be the change in price for each of the bonds? Does this tell us anything about the relationship between frequency of cash ?ows and interest rate risk? Bond A: This bond is a Eurobond. It has 10 years to maturity, pays a 7 percent coupon, and the market interest rate is 11.3 percent. Bond B: This is a issued in the U.S. It has 10 years to maturity, pays a 7 percent coupon, and the market interest rate is 11.3 percent.

Explanation / Answer

Koppen Corporation has two bond issues outstanding, each with a par value of $1,000. Information about each is listed below. Suppose market interest rates rise 1 percentage point across the yield curve. What will be the change in price for each of the bonds?

Does this tell us anything about the relationship between frequency of cash ows and interest rate risk?

Bond A: This bond is a Eurobond. It has 10 years to maturity, pays a 7 percent coupon, and the market interest rate is 11.3 percent.

Bond B: This is a issued in the U.S. It has 10 years to maturity, pays a 7 percent coupon, and the market interest rate is 11.3 percent.

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