Question: Please explain in detail how you reached the answer and show mathematical calculations (and not just the results).
You are interested in two bonds. Coupons are paid annually. Which bond's price will change more (in percentage terms) as interest rates fall? Why?
|
Bond
|
Matures
in
|
Coupon
Rate
|
Current
Price
|
|
Smith Inc.
|
5 years
|
8%
|
$1000.00
|
|
Vortex
|
10 years
|
5%
|
$798.70
|