The Faulk Corp. has a bond with a coupon rate of 7 percent outstanding. The Gonas...

60.1K

Verified Solution

Question

Finance

The Faulk Corp. has a bond with a coupon rate of 7 percentoutstanding. The Gonas Company has a bond with a coupon rate of 13percent outstanding. Both bonds have 15 years to maturity, makesemiannual payments, and have a YTM of 10 percent.

(A) If interest rates suddenly rise by 2 percent, what is thepercentage change in the price of these bonds?
(B) What if rates suddenly fall by 2 percent instead?

Answer & Explanation Solved by verified expert

4.3 Ratings (821 Votes)

Step1Calculation of current price of bonds Price of bond is the present value of cash flow from bond Price of Faulk Corp bond pvratenperpmtfv Where 76941 pv Present value of cash flows from bonds rate YTM 5 nper Number of period 30 pmt Coupon payment 3500 fv Face value 100000 Price of Gonas company bond pvratenperpmtfv Where 123059 pv Present value of cash flows from bonds See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

The Faulk Corp. has a bond with a coupon rate of 7 percentoutstanding. The Gonas Company has a bond with a coupon rate of 13percent outstanding. Both bonds have 15 years to maturity, makesemiannual payments, and have a YTM of 10 percent.(A) If interest rates suddenly rise by 2 percent, what is thepercentage change in the price of these bonds?(B) What if rates suddenly fall by 2 percent instead?