Bond X has a maturity of 10 periods. Bond Y has a maturity of 10 periods....
Bond X has a maturity of 10 periods. Bond Y has a maturity of 10 periods. The yield-to-maturity for both bonds is currently 9%. The coupon rate for Bond X is 14% and the coupon rate for Bond Y is 10.5%. Which bond’s price will exhibit a larger percentage change in value in response to a 25 basis point increase in the yield-to-maturity?
Homework Answers
Bond Y will show a larger percentage change in value in response to a 25 basis point increase in the yield-to-maturity. This is because lower coupon bonds are subject to greater interest rate risks than higher coupon bonds. The duration of the lower coupon bond is higher than that of higher coupon bond.
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Bond X has a maturity of 10 periods. Bond Y has a maturity of 10
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