Both Bond Sam and Bond Dave have 6 percent coupons. make semiannual payments. an

Question

Both Bond Sam and Bond Dave have 6 percent coupons. make semiannual payments. and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent. what is the percentage change in the price of Bond Sam and Bond Dave? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) Percentage change in price of Bond Sam % Percentage change in price of Bond Dave % If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of Bond Sam and Bond Dave? (Round your answers to 2 decimal places. (e.g., 32.16)) Percentage change in price of Bond Sam % Percentage change in price of Bond Dave %

Explanation / Answer

Band Sam Band Dave Face Value 1000 1000 Year to matuirity 3 20 Year to maturity half -Year periods 6 40 Coupon rate 6% 6% Semiannual Coupon rate 3% 3% Market Value 1000 1000 Ans 1 Interest rate (Revised) 8% 8% Semi-annual interest rate 4% 4% Price=(C*(1-(1+YTM)^-n)/1+YTM)+FV*1+YTM^-n      947.58      802.07 % Change in Price = (Current Price-Price before revision)/Price before revision -5.2% -19.8% Ans 2 Interest rate (Revised) 4.00% 4.00% Semi-annual interest rate 2% 2% Price=(C*(1-(1+YTM)^-n)/1+YTM)+FV*1+YTM^-n 1,056.01 1,273.55 % Change in Price = (Current Price-Price before revision)/Price before revision 5.6% 27.4%

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