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Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced...

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Finance

Both Bond Sam and Bond Dave have 9 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 5 percent,what is the percentage change in the price of Bond Sam?

(b) If interest rates suddenly rise by 5 percent, what is thepercentage change in the price of Bond Dave?

Requirement 2: (a) If rates were to suddenly fall by 5 percentinstead, what would the percentage change in the price of Bond Sambe then?

(b) If rates were to suddenly fall by 5 percent instead, whatwould the percentage change in the price of Bond Dave be then?

Answer & Explanation Solved by verified expert
3.6 Ratings (399 Votes)
Part 1 Change in YTM 5 Bond Sam K Nx2 Bond Price Coupon1 YTM2k Par value1 YTM2Nx2 k1 K 2x2 Bond Price 910002001 14200k 10001 142002x2 k1 Bond Price 91532 age change in price New priceOld    See Answer
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Both Bond Sam and Bond Dave have 9 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 5 percent,what is the percentage change in the price of Bond Sam?(b) If interest rates suddenly rise by 5 percent, what is thepercentage change in the price of Bond Dave?Requirement 2: (a) If rates were to suddenly fall by 5 percentinstead, what would the percentage change in the price of Bond Sambe then?(b) If rates were to suddenly fall by 5 percent instead, whatwould the percentage change in the price of Bond Dave be then?

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