Bond J is a 4 percent coupon bond. Bond K is a 10 percent coupon bond. Both bonds have 7 years to maturity, make semiannual payments, and have a YTM of 8 percent.
Requirement 1:
(a) If interest rates suddenly rise by 4 percent, what is the percentage price change of Bond J?
Answer Options: -20.35, -18.35, -20.33, 26.80, -19.35
(b) If interest rates suddenly rise by 4 percent, what is the percentage price change of Bond K?
Answer Options: 23.31, -15.96, -17.94, -17.96, 26.64
Requirement 2:
(a) If interest rates suddenly fall by 4 percent, what is the percentage price change of Bond J?
Answer Options: 1.00, -20.37, -37.18, 26.78, 26.76
(b) If interest rates suddenly fall by 4 percent, what is the percentage price change of Bond K?
Answer Options: -17.98, 23.17, -36.32, -8.29, 23.39