General Electric has two bonds outstanding. Both issues have the same credit rating, a face value of $1,000 and a coupon rate of 6%. Coupons are paid twice a year. Bond A matures in 1 year, while bond B matures in 28 years. The market interest rate for similar bonds is 12%. By how much will the price of bond A fall if yields increase to 13% immediately (in absolute dollars)? By how much will the price of bond B fall if yields increase to 13% immediately (in absolute dollars)?

General Electric has two bonds outstanding. Both issues have the same credit rating, a face value of $1,000 and a coupon rate of 6%. Coupons are paid twice a year. Bond A matures in 1 year, while bond B matures in 28 years. The market interest rate for similar bonds is 12%. By how much will the price of bond A fall if yields increase to 13% immediately (in absolute dollars)? By how much will the price of bond B fall if yields increase to 13% immediately (in absolute dollars)?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 10P

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