Bond J is a 3 percent coupon bond. Bond K is a 9 percent coupon bond. Both bonds have 7 years to maturity, make semiannual payments, and have a YTM of 6 percent.
If interest rates suddenly rise by 5 percent,
Bond K will decrease in price by ……………………. percent (enter 5.5% as 5.5 not 0.055, min 2 decimal accuracy)
-22.69%
| Bond K: | ||||
| Current Price | =-pv(rate,nper,pmt,fv) | |||
| = $ 1,169.44 | ||||
| Where, | ||||
| rate | = | 6%/2 | = | 0.03 |
| nper | = | 7*2 | = | 14 |
| pmt | = | 1000*4.5% | = | $ 45.00 |
| fv | = | $ 1,000.00 | ||
| New Price | =-pv(rate,nper,pmt,fv) | |||
| = $ 904.10 | ||||
| Where, | ||||
| rate | = | 11%/2 | = | 0.055 |
| nper | = | 7*2 | = | 14 |
| pmt | = | 1000*4.5% | = | $ 45.00 |
| fv | = | $ 1,000.00 | ||
| Change in Price | = | (P1-P0)/P0 | ||
| = | (904.10-1169.44)/1169.44 | |||
| = | -22.69% | |||
| Where, | ||||
| P0 | = | $ 1,169.44 | ||
| P1 | = | $ 904.10 | ||
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