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Both Bond Sam and Bond Dave have 7 percent annual coupons, but make semiannual payments. The bonds' yield to maturity is equal to the coupon rate, so the bonds and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 16 years to maturity.

To see how changes in interest rates affect bond prices, assume that interest rates suddenly rise by 2 percent. What is the percentage change in the price of Bond Sam and Bond Dave? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Percentage change in price of Bond Sam ______ %

Percentage change in price of Bond Dave              ______ %

If rates were to suddenly fall by 2 percent instead of rising, what would be the percentage change in the price of Bond Sam and Bond Dave? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.

Percentage change in price of Bond Sam              ______ %

Percentage change in price of Bond Dave            ______ %  

Financial Management, Finance

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