Question

Bond J has a coupon rate of 3 percent and Bond K has a coupon rate of 9 percent. Both bonds have 13 years to maturity, make semiannual payments, and have a YTM of 6 percent. a. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds

Answer 1

Solution :

Given :

Coupon rate for Bond J = 3%

Coupon rate for Bond K = 9%

YTM = 6 %

Therefore,

The current price for Bond J = $ 718.54       =PV(6%/2,13x2,30/2,1000)x -1

The current price for Bond K = $ 1281.46       =PV(6%/2,13x2,90/2,1000)x -1

If the interest rate by 2%,

Bond J =  $ 583.42     =  -18.80% (change in bond price)

Bond K  = $ 1083.32   = -15.46% (change in bond price)