Both Bond Sam and Bond Dave have 6 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has five years to maturity, whereas Bond Dave has 18 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam and Bond Dave? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage change in price of Bond Sam % Percentage change in price of Bond Dave % If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of Bond Sam and Bond Dave? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage change in price of Bond Sam % Percentage change in price of Bond Dave %
am and Bond Dave have 6 percent coupons,
make semiannual payments
Bond Sam has five years to maturity, and Bond Dave has 18 years to maturity.
interest rates suddenly rise by 2 percent
Pf=maturity value
r=interest rate
n=number of years
= $30(PVIFA4%,10) + $1,000(PVIF4%,10)
=243.32+675.6
=818.93
PDave = $30(PVIFA4%,36) + $1,000(PVIF4%,36)
= $810.949
The percentage change in price is calculated as:+
Percentage change in price = (New price – Original price) / Original price
DPSam% = ($918.93– 1,000) / $1,000 = – 8.10%
DPDave% = ($810.949– 1,000) / $1,000 = – 18.91%
If rate fall by 2 % then % change is as follow
= $30(PVIFA2%,10) + $1,000(PVIF2%,10)
=1089.778
PDave = $30(PVIFA2%,36) + $1,000(PVIF2%,36)
= $1254.90
The percentage change in price is calculated as:
Percentage change in price = (New price – Original price) / Original price
DPSam% = ($1089.778– 1,000) / $1,000 = – 8.98%
DPDave% = ($1254.90– 1,000) / $1,000 = – 25.49 %
