Question

Both Bond Sam and Bond Dave have 6.5 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam? Of Bond Dave? If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? Of Bond Dave? All bond price answers should be dollar prices. Bond Sam: Coupon rate Settlement date Maturity date Redemption (% of par) # of coupons per year 6.5% 1/1/2000 1/1/2003 100 2 Bond Dave: Connnn rate 6:59

built in excel formula please!!!!

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Answer 1

Bond Sam Bond Dave Face value Coupon 1000 (0.065*1000*1/2) 32.5 Face value Coupon 100 (0.065*1000*1/2) 32.5 Maturity period 3*2 = 6 Maturity period (20 * 2) = 40 Curreny YTM 6.50% Current YTM 6.50% price price PV(6.5%/2,6,32.5,1000) 1000 PV(6.5%/2,40,32.5,1000) 1000 price when the YTM is 8.5% price when the YTM is 8.5% PV(8.5%/2,6,32.5,1000) PV(8.5%/2,40,32.5, 1000) 948.00 809.23 % decrease % decrease (948-1000)/1000 -5.20% (809.23 - 1000)/1000 -19.08% price when the YTM is 4.5% price when the YTM is 4.5% PV (4.5%/2,6,32.5,1000) PV(4.5%/2,40,32.5, 1000) 1,055.54 1,261.94 % increase (1055.54 - 1000)/1000 % Increase (1261.94 - 1000)/1000 5.55% 26.19%