B) Firm A has a 6% coupon bond outstanding. Firm B has 14% coupon bond outstanding. Both bonds have 12 years to maturity and make semi-annual payments. YTM for both bonds also equal 12%. If interest rates suddenly rise 2%, what is the percentage change in bond prices? If interest rates suddenly drop 2%, what is the percentage change in bond prices? What does this tell you about the relationship between interest rate risk and coupon rate?

B) Firm A has a 6% coupon bond outstanding. Firm B has 14% coupon bond outstanding. Both bonds have 12 years to maturity and make semi-annual payments. YTM for both bonds also equal 12%. If interest rates suddenly rise 2%, what is the percentage change in bond prices? If interest rates suddenly drop 2%, what is the percentage change in bond prices? What does this tell you about the relationship between interest rate risk and coupon rate?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter5: Bonds, Bond Valuation, And Interest Rates

Section: Chapter Questions

Problem 5MC: What would be the value of the bond described in Part d if, just after it had been issued, the...

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