Both Bond Huell and Bond Kuby have 9 percent coupons, make semiannual payments,

Question

Both Bond Huell and Bond Kuby have 9 percent coupons, make semiannual payments, and are priced at par value. Bond Huell has six years to maturity, whereas Bond Kuby has 17 years to maturity.

If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Huell and Bond Kuby? (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 Bond Huell and Bond Kuby? (Round your answers to 2 decimal places. (e.g., 32.16))

Both Bond Huell and Bond Kuby have 9 percent coupons, make semiannual payments, and are priced at par value. Bond Huell has six years to maturity, whereas Bond Kuby has 17 years to maturity.

Explanation / Answer

Because the bonds are priced at face value, the YTM is the coupon rate.

You can check this by using the formula I gave you previously

i.e. Huell: 45 * [1 - (1 + 0.045) ^ -12] / 0.045 + 1,000 / (1 + 0.045) ^ 12= $1,000

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