Bond Price and Interest Rate Risk 8. Consider two 10-year bonds, both with par values of $1,000. Bond A has a 5% coupon rate (paid semiannually) and Bond B has an 8% coupon rate (paid semiannually). If market interest rates increase suddenly by 1%, will the price of these bonds go up, or down? Which will experience the biggest percentage change in price? Calculate the percentage price change for both bonds (assume initially, before the increase in market interest rates, that both bonds are priced at par value).

Answer rating: 100% (QA)

SOLUTION We have two bonds Bond A has a 5 coupon rate paid semiannually on a 1000 par value Bond ... View the full answer