Question

Both Bond Bill and Bond Ted have 12.4 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 22 years to maturity. Both bonds have a par value of 1,000.

If interest rates suddenly rise by 3 percent, what is the percentage change in the price of these bonds? (A negative answer 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
Bond Bill	%
Bond Ted	%

If rates were to suddenly fall by 3 percent instead, what would be the percentage change in the price of these bonds? (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
Bond Bill	%
Bond Ted	%

Answer 1

If interest rates suddenly rise by 3 percent, what is the percentage change in the price of these bonds? (A negative answer 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
Bond Bill   =PV((12.4%+3%)/2,2*5,-12.4%*1000/2,-1000)/1000-1=-10.20%

Bond Ted   =PV((12.4%+3%)/2,2*22,-12.4%*1000/2,-1000)/1000-1=-18.74%

If rates were to suddenly fall by 3 percent instead, what would be the percentage change in the price of these bonds? (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
Bond Bill   =PV((12.4%-3%)/2,2*5,-12.4%*1000/2,-1000)/1000-1=11.75%

Bond Ted   =PV((12.4%-3%)/2,2*22,-12.4%*1000/2,-1000)/1000-1=27.68%