B) Firm A has a 6% coupon bond outstanding. Firm B has 14% coupon bond outstanding. Both bonds have 12 years to maturity and make semi-annual payments. YTM for both bonds also equal 12%. If interest rates suddenly rise 2%, what is the percentage change in bond prices? If interest rates suddenly drop 2%, what is the percentage change in bond prices? What does this tell you about the relationship between interest rate risk and coupon rate?

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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B) Firm A has a 6% coupon bond outstanding. Firm B has 14% coupon bond outstanding.
Both bonds have 12 years to maturity and make semi-annual payments. YTM for both
bonds also equal 12%. If interest rates suddenly rise 2%, what is the percentage change
in bond prices?
If interest rates suddenly drop 2%, what is the percentage change in bond prices? What
does this tell you about the relationship between interest rate risk and coupon rate?
Transcribed Image Text:B) Firm A has a 6% coupon bond outstanding. Firm B has 14% coupon bond outstanding. Both bonds have 12 years to maturity and make semi-annual payments. YTM for both bonds also equal 12%. If interest rates suddenly rise 2%, what is the percentage change in bond prices? If interest rates suddenly drop 2%, what is the percentage change in bond prices? What does this tell you about the relationship between interest rate risk and coupon rate?
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