Both Bond Sam and Bond Dave have 10 percent coupons make sem

Both Bond Sam and Bond Dave have 10 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to maturity, whereas Bond Dave has 17 years to maturity. (Do not round your intermediate calculations.) Requirement 1: (a) If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Sam? (Click to select) 4 (b) If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Dave? (Click to select) A Requirement 2: (a) If rates were to suddenly fall by 4 percent instead, what would the percentage change in the price of Bond Sam be then? (Click to select) A (b) If rates were to suddenly fall by 4 percent instead, what would the percentage change in the price of Bond Dave be then? (Click to select)+

Solution

Requirement 1:

a

For Bond Sam

Using financial calculator BA II Plus - Input details:

Rise by 4%

I/Y = Rate or yield / frequency of coupon in a year = (10+4)/2

7.00

PMT = Payment = Coupon / frequency of coupon =

-$50.00

N = Total number of periods = Years x frequency of coupon =

6

FV = Future Value =

-$1,000.00

CPT > PV = Bond Value =

$904.67

Requirement 1:

b

For Bond Dave

Using financial calculator BA II Plus - Input details:

Rise by 4%

I/Y = Rate or yield / frequency of coupon in a year = (10+4)/2

7.00

PMT = Payment = Coupon / frequency of coupon =

-$50.00

N = Total number of periods = Years x frequency of coupon =

34

FV = Future Value =

-$1,000.00

CPT > PV = Bond Value =

$742.92

Requirement 2:

b

For Bond Sam

Using financial calculator BA II Plus - Input details:

Fall by 4%

I/Y = Rate or yield / frequency of coupon in a year = (10-4)/2

3.00

PMT = Payment = Coupon / frequency of coupon =

-$50.00

N = Total number of periods = Years x frequency of coupon =

6

FV = Future Value =

-$1,000.00

CPT > PV = Bond Value =

$1,108.34

Requirement 2:

b

For Bond Dave

Using financial calculator BA II Plus - Input details:

Fall by 4%

I/Y = Rate or yield / frequency of coupon in a year = (10-4)/2

3.00

PMT = Payment = Coupon / frequency of coupon =

-$50.00

N = Total number of periods = Years x frequency of coupon =

34

FV = Future Value =

-$1,000.00

CPT > PV = Bond Value =

$1,422.64

For Bond Sam
Using financial calculator BA II Plus - Input details:	Rise by 4%
I/Y = Rate or yield / frequency of coupon in a year = (10+4)/2	7.00
PMT = Payment = Coupon / frequency of coupon =	-$50.00
N = Total number of periods = Years x frequency of coupon =	6
FV = Future Value =	-$1,000.00
CPT > PV = Bond Value =	$904.67