Laurel, Inc., and Hardy Corp. both have 10 percent coupon bonds outstanding, wit
ID: 2631186 • Letter: L
Question
Laurel, Inc., and Hardy Corp. both have 10 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has 6 years to maturity, whereas the Hardy Corp. bond has 15 years to maturity.
(a) If interest rates suddenly rise by 3 percent, what is the percentage change in the price of these bonds? (Do not include the percent signs (%). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) Percentage change in price Laurel % Hardy %
(b) If interest rates were to suddenly fall by 3 percent instead, what would the percentage change in the price of these bonds? (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16)) Percentage change in price Laurel % Hardy %
Explanation / Answer
Laurel, Inc., and Hardy Corp. both have 10 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has 6 years to maturity, whereas the Hardy Corp. bond has 15 years to maturity.
(a) If interest rates suddenly rise by 3 percent, what is the percentage change in the price of these bonds? (Do not include the percent signs (%). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))
Present Price of Bond :
Laurel, Inc = 1000
Hardy Corp = 1000
After Percentage Price would be
Laurel, Inc = pv(6.5%,12,50,1000)
Laurel, Inc = 877.62
Hardy Corp = pv(6.5%,30,50,1000)
Hardy Corp = $ 804.12
Percentage change in price
Laurel, Inc = (877.62-1000)/1000 = -12.24%
Hardy Corp = (804.12-1000)/1000 = -19.59%
Percentage change in price Laurel -12.24% Hardy -19.59%
(b) If interest rates were to suddenly fall by 3 percent instead, what would the percentage change in the price of these bonds? (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16))
Present Price of Bond :
Laurel, Inc = 1000
Hardy Corp = 1000
After Percentage Price would be
Laurel, Inc = pv(3.5%,12,50,1000)
Laurel, Inc =1144.95
Hardy Corp = pv(3.5%,30,50,1000)
Hardy Corp = $ 1275.88
Percentage change in price
Laurel, Inc = (1144.95-1000)/1000 = 14.50%
Hardy Corp = (1275.88-1000)/1000 = 27.59%
Percentage change in price Laurel 14.50 % Hardy 27.59%
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