QUESTION THREE Lackson PLC and Hardy Corp. both have 8 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Lackson PLC bond has 2 years to maturity, whereas the Hardy Corp. bond has 15 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then? What does this problem tell you about the interest rate risk of longer-term bonds?
QUESTION THREE Lackson PLC and Hardy Corp. both have 8 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Lackson PLC bond has 2 years to maturity, whereas the Hardy Corp. bond has 15 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then? What does this problem tell you about the interest rate risk of longer-term bonds?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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QUESTION THREE
Lackson PLC and Hardy Corp. both have 8 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Lackson PLC bond has 2 years to maturity, whereas the Hardy Corp. bond has 15 years to maturity.
- If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds?
- If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then?
- What does this problem tell you about the interest rate risk of longer-term bonds?
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