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Determining the interest rate risk of longer-term bonds

Both Bond Bill and Bond Ted have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 3 years to maturity, whereas Bond Ted has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Bill? Of Bond Ted? If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Bill be then? Of Bond Ted? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?

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Solution Preview :

Prepared by a verified Expert

Finance Basics: Determining the interest rate risk of longer-term bonds

Reference No:- TGS0676638

Have a Question? (oR Write a Review)

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Solution Preview :

Prepared by a verified Expert

Finance Basics: Determining the interest rate risk of longer-term bonds

Reference No:- TGS0676638

Recent Questions Asked Finance Basics

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