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What would the percentage change in the price of bond

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Question - Both Bond Sam and Bond Dave have 6.5 percent coupons, 6.5 percent YTMs, make semi-annual payments, and are initially priced at par value. However, Bond Sam has 3 years to maturity, whereas Bond Dave has 20 years to maturity.

a) If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam? Of Bond Dave?

b) If interest rates suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? Of Bond Dave?

c) What do these results tell you about the interest-rate risk of longer-term bonds?

Reference no: EM132814590

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