What does this problem tell you about the interest risk

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Microgate Industries Bond has a 10% coupon rate and a $1000 face value. Interest is paid semiannually, and the bond has 20 years to maturity. If investors require a 12% yield, what is the bond's value?

What is the effective annual yield on the bond?

2B. Both Bond B and Bond T have 5.8% coupons, make semiannual payments, and are priced at Par value. Bond B has 5 years to maturity, whereas Bond T has 25 years to maturity. If interest rates suddenly rise by 2%,

what is the percentage change in price of Bond B, and Bond T?

Both bonds have a par value of $1000. If rates were suddenly to fall by2% instead, what would be the percentage change in the price of Bond B and Bond T? What does this problem tell you about the interest risk of long-term bonds?

Reference no: EM133560638

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