Laurel, Inc., and Hardy Corp. both have 7.3 percent coupon bonds outstanding, with semiannual interest payments, and
Question:
Laurel, Inc., and Hardy Corp. both have 7.3 percent coupon bonds outstanding, with semiannual interest payments, and both are currently priced at the par value of $1,000. The Laurel, Inc., bond has 4 years to maturity, whereas the Hardy Corp. bond has 23 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?
Step by Step Answer:
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan