Question

Bond J has a coupon rate of 7 percent and Bond K has a coupon rate of 13 percent. Both bonds have 12 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.)

Percentage change in price of Bond J % ???

Percentage change in price of Bond K % ???

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.)

Percentage change in price of Bond J % ???

Percentage change in price of Bond K % ???

Answer 1

Value of a bond is given by the excel function, PV = PV(R,N,PMT,FV)

R - YTM

N - years to maturity

PMT - Coupon

FV - Par value

Coupon = Coupon rate * par value

Since it is a semiannual compounding, coupon, and YTM and divided by 2, and Years to maturity is multiplied by 2.

	N	Coupon	Price @ 10%	Price @ 12%	Price @ 8%	% change if rise	% change if fall
Bond J	12	7.0%	793.02	686.24	923.77	-13.46%	16.49%
Bond K	12	13.0%	1206.98	1062.75	1381.17	-11.95%	14.43%