General Electric has two bonds outstanding. Both issues have the same credit rating, a face value of $1,000 and a coupon rate of 3%. Coupons are paid twice a year. Bond A matures in 1 year, while bond B matures in 20 years. The market interest rate for similar bonds is 9%. a. By how much will the price of bond A fall if yields increase to 12% immediately? Answer: -35.6 b. By how much will the price of bond B fall if yields increase to 12% immediately (in absolute dollars)?
General Electric has two bonds outstanding. Both issues have the same credit rating, a face value of $1,000 and a coupon rate of 3%. Coupons are paid twice a year. Bond A matures in 1 year, while bond B matures in 20 years. The market interest rate for similar bonds is 9%. a. By how much will the price of bond A fall if yields increase to 12% immediately? Answer: -35.6 b. By how much will the price of bond B fall if yields increase to 12% immediately (in absolute dollars)?
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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General Electric has two bonds outstanding. Both issues have the same credit rating, a face value of $1,000 and a coupon rate of 3%. Coupons are paid twice a year. Bond A matures in 1 year, while bond B matures in 20 years.
The market interest rate for similar bonds is 9%.
a. By how much will the price of bond A fall if yields increase to 12% immediately? Answer: -35.6
b. By how much will the price of bond B fall if yields increase to 12% immediately (in absolute dollars)?
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