Final answer:
The question asks for the percentage price change of Bond J after a 3% rise in interest rates. Without the face value and full details of Bond J, we cannot calculate the exact percentage change. However, when interest rates rise, the value of existing bonds with lower coupon rates will generally decrease.
Step-by-step explanation:
To determine the percentage price change of Bond J when interest rates suddenly rise by 3%, we need to calculate its new yield to maturity and then determine its price change using bond pricing principles. Bond J has a coupon rate of 5 percent, 9 years to maturity, and makes semiannual payments.
When interest rates rise, previously issued bonds with lower coupon rates become less valuable, which means they will sell for less than face value. The bond, which used to have a yield to maturity (YTM) of 7 percent, will now have to offer a new yield that is higher to compensate for the rise in market interest rates.
While we don't have enough information from the data provided to calculate the exact price change of Bond J with the interest rates rising by 3 percent without knowing the face value and other bond features, we can use the example to understand the concept: the investor will receive the $1,000 face value, plus $80 for the last year's interest payment. Hence, with a rise in interest rates, the selling price of Bond J will decrease.