Both Bond Sam and Bond Dave have 7 percent coupons, makesemiannual payments, and are priced at par value. Bond Sam has 2years to maturity, whereas Bond Dave has 12 years to maturity. (Donot round your intermediate calculations.)
Requirement 1:
(a) If interest rates suddenly rise by 4percent, what is the percentage change in the price of BondSam?
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(b) If interest rates suddenly rise by 4percent, what is the percentage change in the price of BondDave?
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Requirement 2:
(a) If rates were to suddenly fall by 4 percentinstead, what would be the percentage change in the price of BondSam be then?
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(b) If rates were to suddenly fall by 4 percentinstead, what would be the percentage change in the price of BondDave be then?
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