Both Bond Bill and Bond Ted have 9.4 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 22 years to maturity. Both bonds have a par value of 1,000.

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Business

Grayson

2 November, 16:32

Both Bond Bill and Bond Ted have 9.4 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 22 years to maturity. Both bonds have a par value of 1,000.

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Answers (1)

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Ally Rice · Answer 1

Bond Bill : - 10.94 % Bond Ted: - 22.47%

Explanation:

I think your question is missed of key information, allow me to add in and hope it will fit the original one.

Both Bond Bill and Bond Ted have 9.4 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 22 years to maturity. Both bonds have a par value of 1,000. If interest rates suddenly rise by 3 percent, what is the percentage change in the price of these bonds?

My answer:

Bond Bill

New yield will be = 9.4℅ + 3℅ = 12.4℅

Semi annual yield = 12.4/2 = 6.2℅

Nper: 5*2 = 10

Coupon rate: 9.4%/2 = 4.7% semiannual

=> Coupon payment: 4.7%*1,000 = $47

Using present value formula in excel

pv = (rate, nper, pmt, fv)

pv = (6.2%, 10, 47, 1000)

pv = 890.64

=> Therefore, ℅ change =

(890.64 - 1000) / 1000 = - 10.94%

Bond Ted

New yield will be = 9.4℅ + 3℅ = 12.4℅

Semi annual yield = 12.4/2 = 6.2℅

Nper: 22*2 = 44

Coupon rate: 9.4%/2 = 4.7% semiannual

=> Coupon payment: 4.7%*1,000 = $47

Using present value formula in excel

pv = (rate, nper, pmt, fv)

pv = (6.2%, 44, 47, 1000)

pv = $775.21

=> Therefore, ℅ change:

(775.21 - 1000) / 1000 = - 22.47%