#7 Bond J has a coupon rate of 7 percent and Bond K has a coupon rate of 13 perc
ID: 2730436 • Letter: #
Question
#7
Bond J has a coupon rate of 7 percent and Bond K has a coupon rate of 13 percent. Both bonds have 16 years to maturity, make semiannual payments, and have a YTM of 10 percent.
If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
What if rates suddenly fall by 2 percent instead? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Explanation / Answer
No of years =32
2,.if interest rate inrease by 2%
3.Interest rate decreased by2%
Step 1: Compute first market price of bond at present interest rates Market price is sum of present value of interest and terminal value Interest payment(Semi annula ) =35(1000*3.5%) Discount rate =5%No of years =32
Bond J Bond K Year Cash flows PVF@5% PV Cash flows PVF@5% PV 1 35 0.952 33.33 65 0.952 61.90 2 35 0.907 31.75 65 0.907 58.96 3 35 0.864 30.23 65 0.864 56.15 4 35 0.823 28.79 65 0.823 53.48 5 35 0.784 27.42 65 0.784 50.93 6 35 0.746 26.12 65 0.746 48.50 7 35 0.711 24.87 65 0.711 46.19 8 35 0.677 23.69 65 0.677 43.99 9 35 0.645 22.56 65 0.645 41.90 10 35 0.614 21.49 65 0.614 39.90 11 35 0.585 20.46 65 0.585 38.00 12 35 0.557 19.49 65 0.557 36.19 13 35 0.530 18.56 65 0.530 34.47 14 35 0.505 17.68 65 0.505 32.83 15 35 0.481 16.84 65 0.481 31.27 16 35 0.458 16.03 65 0.458 29.78 17 35 0.436 15.27 65 0.436 28.36 18 35 0.416 14.54 65 0.416 27.01 19 35 0.396 13.85 65 0.396 25.72 20 35 0.377 13.19 65 0.377 24.50 21 35 0.359 12.56 65 0.359 23.33 22 35 0.342 11.96 65 0.342 22.22 23 35 0.326 11.39 65 0.326 21.16 24 35 0.310 10.85 65 0.310 20.15 25 35 0.295 10.34 65 0.295 19.19 26 35 0.281 9.84 65 0.281 18.28 27 35 0.268 9.37 65 0.268 17.41 28 35 0.255 8.93 65 0.255 16.58 29 35 0.243 8.50 65 0.243 15.79 30 35 0.231 8.10 65 0.231 15.04 31 35 0.220 7.71 65 0.220 14.32 32 1035 0.210 217.21 1065 0.210 223.51 Market price 763 1237Related Questions
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