Both Bond Bill and Bond Ted have 11.8 percent coupons, make semiannual payments,
ID: 2652960 • Letter: B
Question
Both Bond Bill and Bond Ted have 11.8 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 7 years to maturity, whereas Bond Ted has 24 years to maturity.
If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)
%
If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Requirement 1:Explanation / Answer
Ans
Bond Bill Computation of Duration and Volatality Period DF Cash Flow DCF Proportion of Bond Value Proportion of Bond Value* Time (Semi AnnualPeriods) 1 0.94 59 55.71 0.06 0.06 2 0.89 59 52.60 0.05 0.11 3 0.84 59 49.66 0.05 0.15 4 0.79 59 46.89 0.05 0.19 5 0.75 59 44.28 0.04 0.22 6 0.71 59 41.81 0.04 0.25 7 0.67 59 39.47 0.04 0.28 8 0.63 59 37.27 0.04 0.30 9 0.60 59 35.19 0.04 0.32 10 0.56 59 33.23 0.03 0.33 11 0.53 59 31.37 0.03 0.35 12 0.50 59 29.62 0.03 0.36 13 0.47 59 27.97 0.03 0.36 14 0.45 1059 474.00 0.47 6.64 Duration 9.90 Volatality of Price Duration/1+YTM 9.351%Related Questions
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