Question

Laurel, Inc., and Hardy Corp. both have 9 percent coupon bonds outstanding, with semiannual interest payments, and both are currently priced at the par value of $1,000. The Laurel, Inc., bond has five years to maturity, whereas the Hardy Corp. bond has 18 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of each bond? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage change in price of Laurel, Inc., bond Percentage change in price of Hardy Corp. bond В: If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of each bond? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage change in price of Laurel, Inc, bond Percentage change in price of Hardy Corp. bond

Answer 1

rise by 2% interest rate 11% 10 BOND Laurel: interest rate 9% 10 fall by 2% interest rate 7% 10 NPER Number of coupon payments rate rate per period YTM/2 PMT= coupon paid per period (5*2) (9%/2) (1000* 9%/2) (5*2) (11%/2) (1000*9%/2) (5*2) (7%/2) (1000* 9%/2) 0.045 0.055 0.035 45 45 45 FV - Face value 1000 1000 1000 $924.62 Price -PV(RATE,NPER,PMT,FV) rise by 2% Pv PRICE = $1,000.00 $1,083.17 BOND Hardy: fall by 2% interest rate 7% 36 interest rate 9% interest rate 11% NPER Number of coupon payments rate rate per period YTM/2 PMT coupon paid per period (18*2 5%/2 (1000*9%/2) (18*2 (11%/2) ( 1000*9%/2) (18*2) 7%/2 (1000* 9%/2) 36 36 0.045 0.055 0.035 45 45 45 FV - Face value 1000 1000 1000 Pv PRICE = $1,000.00 $844.64 $1,202.90 Price =-PV(RATE,NPER, PMT,FV)

Requirement 1: If interest rate rises by 2%; percentage change in price of Bond Laurel percentage change in price of Bond Hardy 7.54% %20A% (92452-1000)/1000 (M4.MIXX))/1.XX) Requirement 2: If interest rate falls by 2%; percentage change in price of Bond Laurel percentage change in price of Bond Hardy 8.32% 20.29% (108317-1000)/1000 (1202.90-1000)/1000