The Faulk Corp. has a bond with a coupon rate of 6.4 percent outstanding. The Gonas Company

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The Faulk Corp. has a bond with a coupon rate of 6.4 percent outstanding. The Gonas Company has a bond with a coupon rate of 12.6 percent outstanding. Both bonds have 18 years to maturity, make semiannual payments, and have a YTM of 9.5 percent. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? What if interest rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower coupon bonds?

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Corporate Finance Core Principles And Applications

ISBN: 9781260571127

6th Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

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