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Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced...

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Finance

Both Bond Sam and Bond Dave have 7 percent coupons, makesemiannual payments, and are priced at par value. Bond Sam has 2years to maturity, whereas Bond Dave has 12 years to maturity. (Donot round your intermediate calculations.)

Requirement 1:

(a) If interest rates suddenly rise by 4percent, what is the percentage change in the price of BondSam?

(Click to select)

(b) If interest rates suddenly rise by 4percent, what is the percentage change in the price of BondDave?

(Click to select)

Requirement 2:

(a) If rates were to suddenly fall by 4 percentinstead, what would be the percentage change in the price of BondSam be then?

(Click to select)

(b) If rates were to suddenly fall by 4 percentinstead, what would be the percentage change in the price of BondDave be then?

(Click to select)

Answer & Explanation Solved by verified expert
4.4 Ratings (932 Votes)
a If interest rates suddenly rise by 4 percent what is the percentage change in the price of Bond Sam Price of Bond Sam PVratenperpmtfv where rate 11 because it increases by 4 from 7 nper 2 years 22 4 semi annual    See Answer
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