Both Bond Bill and Bond Ted have 12.2 percent coupons, make semiannual payments,

Question

Both Bond Bill and Bond Ted have 12.2 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 4 years to maturity, whereas Bond Ted has 21 years to maturity. Requirement 1: If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)

                  Percentage change in price

Bills's Bond ________%

Ted's Bond _________%

If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

                  Percentage change in price

Bills's Bond ________%

Ted's Bond _________%

Explanation / Answer

BILLS BOND Periods Inflow After Discount 1 $61 $59.80 2 $61 $58.63 3 $61 $57.48 4 $61 $56.35 5 $61 $55.25 6 $61 $54.17 7 $61 $53.10 8 $1,061 $905.55 YTM 2.00 $1,300.34 Periods Inflow After Discount 1 $61 $58.65 2 $61 $56.40 3 $61 $54.23 4 $61 $52.14 5 $61 $50.14 6 $61 $48.21 7 $61 $46.35 8 $1,061 $775.26 YTM 4.00 $1,141.39 Change in Bond Value $158.96 % Change in Bond Value 12.22% TEDS BOND TEDS BOND period Inflow After Discount period Inflow After Discount 1 $61 $59.80 1 $61 $58.65 2 $61 $58.63 2 $61 $56.40 3 $61 $57.48 3 $61 $54.23 4 $61 $56.35 4 $61 $52.14 5 $61 $55.25 5 $61 $50.14 6 $61 $54.17 6 $61 $48.21 7 $61 $53.10 7 $61 $46.35 8 $61 $52.06 8 $61 $44.57 9 $61 $51.04 9 $61 $42.86 10 $61 $50.04 10 $61 $41.21 11 $61 $49.06 11 $61 $39.62 12 $61 $48.10 12 $61 $38.10 13 $61 $47.15 13 $61 $36.64 14 $61 $46.23 14 $61 $35.23 15 $61 $45.32 15 $61 $33.87 16 $61 $44.44 16 $61 $32.57 17 $61 $43.56 17 $61 $31.32 18 $61 $42.71 18 $61 $30.11 19 $61 $41.87 19 $61 $28.95 20 $61 $41.05 20 $61 $27.84 21 $61 $40.25 21 $61 $26.77 22 $61 $39.46 22 $61 $25.74 23 $61 $38.68 23 $61 $24.75 24 $61 $37.93 24 $61 $23.80 25 $61 $37.18 25 $61 $22.88 26 $61 $36.45 26 $61 $22.00 27 $61 $35.74 27 $61 $21.16 28 $61 $35.04 28 $61 $20.34 29 $61 $34.35 29 $61 $19.56 30 $61 $33.68 30 $61 $18.81 31 $61 $33.02 31 $61 $18.08 32 $61 $32.37 32 $61 $17.39 33 $61 $31.73 33 $61 $16.72 34 $61 $31.11 34 $61 $16.08 35 $61 $30.50 35 $61 $15.46 36 $61 $29.90 36 $61 $14.86 37 $61 $29.32 37 $61 $14.29 38 $61 $28.74 38 $61 $13.74 39 $61 $28.18 39 $61 $13.21 40 $61 $27.63 40 $61 $12.71 41 $61 $27.08 41 $61 $12.22 42 $1,061 $1,052.13 42 $1,061 $204.32 YTM 2% $2,747.89 YTM 4% $1,423.90 Change in Bond Value $1,324.00 % Change in Bond Value 21.50%

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