What will be the change in price for each of the bonds? Does this tell us anything about the relationship between time to maturity and interest rate risk?
What will be the change in price for each of the bonds? Does this tell us anything about the relationship between time to maturity and interest rate risk?
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
EZ Marketing Inc., has two bond issues outstanding, each with a par value of $1,000. Information about each is listed below. Suppose market interest rise 2 percentage point across the yield curve. What will be the change in price for each of the bonds? Does this tell us anything about the relationship between time to maturity and interest rate risk? (Bonds make annual coupon payments)
Bond A: 5 years to maturity, 8 % coupon, market interest rate is 9 percent.
Bond B: 12 years to maturity, 8% coupon, market interest rate is 9 percent.
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