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QP5-15 Interest Rate Risk The Faulk Corp. has a 7...

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QP5-15 Interest Rate Risk The Faulk Corp. has a 7 percent coupon bond outstanding. The Gonas Company has a 15 percent bond outstanding. Both bonds have 8 years to maturity, make semiannual payments, and have a YTM of 10 percent. Requirement 1: If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (Negative amount should be indicated by a minus sign. Input answer as a percent rounded to 2 decimal places, without the percent sign. (e.g., 32.16)) Faulk ____________ percent Gonas ____________ percent Requirement 2: What if interest rates suddenly fall by 2 percent instead? (Input answer as a percent rounded to 2 decimal places, without the percent sign. (e.g., 32.16)) Faulk ____________ percent Gonas ____________ percent Requirement 3: What does this problem tell you about the interest rate risk of lower coupon bonds? (a) The lower the coupon rate on a bond, the greater is its price sensitivity to changes in interest rates. (b) The lower the coupon rate on a bond, the lesser is its price sensitivity to changes in interest rates.

 

Paper#7101 | Written in 18-Jul-2015

Price : $25
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