# This textbooks Web site provides an interactive chart for comparing the response of the prices of two

## Question:

This textbook’s Web site provides an interactive chart for comparing the response of the prices of two bonds to a given change in the bond market’s required rate of return. In Chapter 15 of the Student Edition, find “Market Value of Bonds.” Follow the instructions provided with this chart to solve:

a. Problem 16.

b. Problem 17.

**Data From Problem 16:**

Bond A and Bond B both have a face value of $1000, each carries a 5% coupon, and both are currently priced at par in the bond market. Bond A matures in 2 years and Bond B matures in 10 years. If the prevailing required rate of return in the bond market suddenly drops to 4.7% compounded semiannually, how much will the market price of each bond change? What general rule does this outcome demonstrate?

**Data From Problem 17:**

Bond C and Bond D both have a face value of $1000, and each carries a 4.2% coupon. Bond C matures in 3 years and Bond B matures in 23 years. It the prevailing required rate of return in the bond market suddenly rises from the current 4.5% to 4.8% compounded semiannually, how much will the market price of each bond change? What general rule does this outcome demonstrate?

## Step by Step Answer:

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