Question

Laurel, Inc., and Hardy Corp. both have 6 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has four years to maturity, whereas the Hardy Corp. bond has 19 years to maturity.

If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

ДА В Laurel Hardy $1,000 $1,000 hem to Par value Current Value Years To Maturity Coupon rate Frequency YTM $1,000 $1,000 priced at par 19 6% 2 semi-annual 6.00% 6% 6.00% 9 a) New YTM New Price 11 % Change 8.00% $932.67 -6.73% 8.00% $806.32 -19.37% 13 b) New YTM 14 New Price % Change 16 4.00% $1,073.25 7.33% 4.00% $1,264.41 26.44% 15

B HNM + Laurel 1000 1000 Hardy 1000 1000 priced at par 19 Par value Current Value Years To Maturity Coupon rate Frequency YTM 0.06 0.06 semi-annual =C6*RATE(C4*C4,C5*C2/C6,-C3,C2) =D6*RATE(D4*D6,D5*D2/D6,-D3,D2) 0 New YTM New Price % Change =C7+2% --PV(C9/C$6,C$4*C$6,C$5*C$2/C$6,C$2) =(C10-C$3)/C$3 =D7+2% =-PV(D9/D$6,0$4*D$6,D$5*D$2/D$6,D$2) =(D10-D$3)/D$3 11 12 13 b) New YTM New Price % Change =C7-2% =-PV(C13/C$6,C$4*C$6,C$5*C$2/C$6,C$2) =(C14-C$3)/C$3 =D7-2% =-PV(D13/D$6,D$4*D$6,D$5*D$2/D$6,D$2) =(D14-D$3)/D$3