Consider two zero coupon bonds. Both have face values of $1 comma 0001,000. Bond

Question

Consider two zero coupon bonds. Both have face values of $1 comma 0001,000. Bond A pays its face value in 33 years, and Bond B pays its face in 1414 years. If interest rates change from 88% to 4.54.5%, what is the percentage change in the long maturity bond's price minus the percentage change in the short maturity bond's price?

The percentage change in the long maturity bond's price minus the percentage change in the short maturity bond's price is nothingm%. _______(Round to two decimal places.)

Explanation / Answer

use pv formuale in excel to find price of the bond

=pv(rate,nper,pmt,fv,type)

Bond A value when interets rate is 88%

=PV(88%,33,,-10001000,0)=$0.01

value when interest rate is 4.545%

=PV(4.545%,33,,-10001000,0)=$2,306,936.38

For bond B we can caluclate same as abpve it is coming zero for both the interets rates.

% change oin short maturity= (2306936/0.01)-1=25715869579%

% change in lomg maturity bond price is 0

the difference is 25715869579%

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