Which bond has more interest rate risk

Assignment Help Financial Management

Reference no: EM131059260

Bond X pays an 8% annual coupon and Bond Y pays a 4% annual coupon. Both bonds have 10 years to maturity. The yield to maturity for bod bonds is now 8%.

a. If the interest rate suddenly rises by 2%. By what percentage will the price of the two bonds change?

b. If the interest rate suddenly drops by 2%. By what percentage will the price of the two bonds change?

c. Which bond has more interest rate risk? Why?

Reference no: EM131059260

Questions Cloud

Rest on a frictionless surface : At the bottom of its path, the ball strikes a 4.90 kg steel block initially at rest on a frictionless surface. The collision is elastic. Find (a) the speed of the ball and (b) the speed of the block, both just after the collision.

How do you think socrates would define harm : How do you think Socrates would define ‘harm', and why is it never justified to harm another, even if it someone who has given harm.

Create a procedure that receives an integer value : Create a procedure that receives an integer value between 0 and 100, and display a single capital letter on the screen. The letter returned by the procedure should be according to the following ranges.

Instructions for group project feasibility study : The objective of this project is to offer you the opportunity to apply the concepts that you have learned in your managerial accounting class. You will select a simple product/service and develop a brief feasibility analysis.

Which bond has more interest rate risk : Bond X pays an 8% annual coupon and Bond Y pays a 4% annual coupon. Both bonds have 10 years to maturity. The yield to maturity for bod bonds is now 8%. Which bond has more interest rate risk? Why? If the interest rate suddenly rises by 2%. By what p..

How you feel you have grown in terms of level of engagement : Reflect on the quality and quantity of your discussion posts, engagement with others and completing assignments for the discussions. This week you were asked to look beyond the surface and discover the power of the informal curriculum on learning ..

Used to discount the cash flows from the expansion project : Jen and Barry's Ice Cream needs $20 million in new capital to expand its production facilities. It will use 40% debt and 60% equity. The company's after-tax cost of debt is 5% and the cost of equity is 12.5%. Flotation costs will be 3% for debt and 9..

The time of purchase and an expected salvage value : An equipment company purchased a machine 5 years ago at a cost of $100,000. It had an expected life of 11 years at the time of purchase and an expected salvage value of $10,000 at the end of the 11 years. It is being depreciated by the straight-line ..

Write a function named g_c_d that takes twopositiveinteger : If the function is passed an argument that is not positive (i.e., greater than zero), then the function should return the value 0 as a sentinel value to indicate that an error occurred

User Account

All Pages