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

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)