What does problem tell you about interest rate risk

Reference no: EM13279284

Interest Rate Risk Laurel, Inc., and Hardy Corp. both have 7 % coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has 2 years to maturity, whereas the Hardy Corp. bond has 15 years to maturity. If interest rates suddenly rise by 2 %, what is the percentage change in the price of these bonds? If interest rates were to suddenly fall by 2 % instead, what would the percentage change in the price of these bonds be then? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?

Reference no: EM13279284

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