Question: Consider two 30-year maturity bonds. Bond A has a coupon rate of 4%, while bond B has a coupon rate of 12%. Both bonds pay

Consider two 30-year bonds. Bond A has a rate of 4%, while bond B has a rate of 12%. Both bonds pay their coupons semiannually.
a. Construct an Excel spreadsheet showing the prices of each of these bonds for yields to ranging from 2% to 15% at intervals of 1 %. Column A should show the yield to (ranging from 2% to 15%), and columns B and C should compute the prices of the two bonds (using Excel's bond price function) at each interest rate.
b. In columns D and E. compute the percentage difference between the bond price and its value when yield to is 8%.
c. Plot the values in columns D and E as a function of the interest rate. Which bond's price is proportionally more sensitive to interest rate changes?
d. Can you explain the result you found in part (c)? Hint: Is there any sense in which a bond that pays a high rate has lower "average" or "effective" than a bond that pays a low rate?

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ab Yield Price A Price B Diff 8 A Diff8 B 2 1493 32467 165 248 3 11968 27714 ... View full answer

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