Bond x pays an 8 annual coupon and bond y pays a 4 annual, Financial Management

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Bond x pays an 8 annual coupon and bond y pays a 4 annual

Bond X pays an 8% annual coupon and Bond Y pays a 4% annual coupon. Both bonds have 10 years to maturity. The yield to maturity for bod bonds is now 8%.

a. If the interest rate suddenly rises by 2%. By what percentage will the price of the two bonds change?

b. If the interest rate suddenly drops by 2%. By what percentage will the price of the two bonds change?

c. Which bond has more interest rate risk? Why?

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Financial Management: Bond x pays an 8 annual coupon and bond y pays a 4 annual

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