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Laurel Inc and Hardy Corp both have 8% coupon bonds outstanding

Description

solution


Question

Laurel Inc and Hardy Corp both have 8% coupon bonds outstanding, with semiannual interest payments and both are priced at par value. The Laurel Inc bond has 2 years to maturity, whereas the Hardy Corp bond had 5 years to maturity. If interest rates suddenly rise by 2%, what is the percentage change in the price of these bonds? If the interest rates were to suddenly fall by 2%, what would the percentage change in the price of these bonds be then? What does this problem tell you about the interest rate risk of longer-term bonds

 

Paper#34726 | Written in 18-Jul-2015

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