What if rates suddenly fall by two percent instead

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Bond J has a coupon rate of 3 percent. Bond K has a coupon rate of 9 percent. Both bonds have 19 years to maturity, make semi-annual payments, and have a YTM of 6 percent.

Problem a) What is the price of each bond today?

Problem b) If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds?

Problem c) What if rates suddenly fall by 2 percent instead? What is the percentage change of each bond?

Problem d) What do these results tell you about the interest-rate risk of lower-coupon bonds?

Reference no: EM132962557

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