Question

Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced...

Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to maturity, whereas Bond Dave has 15 years to maturity.

If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Sam?
If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Dave?

If rates were to suddenly fall by 4 percent instead, what would the percentage change in the price of Bond Sam be then?

If rates were to suddenly fall by 4 percent instead, what would the percentage change in the price of Bond Dave be then?

Homework Answers

Answer #1
If interest rates suddenly rise by 4 percent

Bond Sam:-

If rates suddenly increase by 4%, the new YTM will be = 8% + 4% =12%

Then current price of bond is:

=PV(12%/2,3*2,80/2,1000)

=901.65

Change in price =901.65-1000/1000 = -9.83

Bond Dave:

If rates suddenly increase by 4%, the new YTM will be = 8% + 4% =12%

Then current price of bond is:

=PV(12%/2,15*2,80/2,1000)

=724.70

Change in price =724.70-1000/1000 = -27.53%

b)

Bond Sam:

If rates suddenly fall by 4%, the new YTM will be = 8% - 4% =4%

Then current price of bond is:

=PV(4%/2,3*2,80/2,1000)

=1112.03

Change in price =1112.03-1000/1000 = 11.20%

Bond Dave:

Then the current price of the bond is:

=PV(4%/2,15*2,80/2,1000)

=1447.93

Change in price =1447.93-1000/1000 = 44.79%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced...
Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 2 years to maturity, whereas Bond Dave has 14 years to maturity. If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Sam?          If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Dave?          If rates were to...
Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced...
Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 4 years to maturity, whereas Bond Dave has 16 years to maturity. a) If interest rates suddenly rise by 5 percent, what is the percentage change in the price of Bond Sam? b) If interest rates suddenly rise by 5 percent, what is the percentage change in the price of Bond Dave? c) If rates were to suddenly...
Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced...
Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 5 years to maturity, whereas Bond Dave has 11 years to maturity. If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Sam? If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Dave? If rates were to suddenly fall by 4...
Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced...
Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 16 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? If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of Bond Sam and Bond...
Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced...
Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 5 years to maturity, whereas Bond Dave has 13 years to maturity.     If interest rates suddenly rise by 3 percent, what is the percentage change in the price of Bond Sam? If interest rates suddenly rise by 3 percent, what is the percentage change in the price of Bond Dave?
Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced...
Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 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? Of Bond Dave? If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? Of...
Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced...
Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has six years to maturity, whereas Bond Dave has 19 years to maturity. a.   If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam and Bond Dave? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded...
Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced...
Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 4 years to maturity, whereas Bond Dave has 18 years to maturity. (Do not round your intermediate calculations.)     Requirement 1: (a) If interest rates suddenly rise by 5 percent, what is the percentage change in the price of Bond Sam?     (Click to select)  15.48%  -14.91%  -17.55%  -14.93%  18.33%      (b) If interest rates suddenly rise by 5 percent, what is the...
Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced...
Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has five years to maturity, whereas Bond Dave has 16 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. Do not round intermediate calculations and enter your answers as a percent rounded to 2...
Both Bond Sam and Bond Dave have 7 percent coupons, make semi-annual payments, and are priced...
Both Bond Sam and Bond Dave have 7 percent coupons, make semi-annual payments, and are priced at par value. Bond Sam has 3 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? Of Bond Dave? If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? Of...