Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 5 years to maturity, whereas Bond Dave has 18 years to maturity.
(a) If interest rates suddenly rise by 3 percent, what is the percentage change in the price of Bond Sam?
(b) If interest rates suddenly rise by 3 percent, what is the percentage change in the price of Bond Dave?
Requirement 2:
(a) If rates were to suddenly fall by 3 percent instead, what would the percentage change in the price of Bond Sam be then?
(b) If rates were to suddenly fall by 3 percent instead, what would the percentage change in the price of Bond Dave be then?