2B. Both Bond B and Bond T have 5.8% coupons, make semiannualpayments, and are priced at Par value. Bond B has 5 years to maturity,whereas Bond T has 25 years to maturity. If interest rates suddenly rise by2%,what is the percentage change in price of Bond B, and Bond T?Both bonds have a par value of $1000. If rates were suddenly to fall by 2%instead, what would be the percentage change in the price of Bond B andBond T? What does this problem tell you about the interest risk of long-term bonds?

Let me perform the calculations in detail using the bond pricing formula and concepts like duration…

Answered: 2B. Both Bond B and Bond T have 5.8%…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 5MC: What would be the value of the bond described in Part d if, just after it had been issued, the...

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