Question: If rates were to suddenly fall by 2 percent instead of rising, what would be the percentage change in the price of Bond Sam and

If rates were to suddenly fall by 2 percent instead of rising, what would be the percentage change in the price of Bond Sam and Bond Dave?

Both Bond Sam and Bond Dave have 6 percent annual coupons, but make semiannual payments. The bonds' yield to maturity is equal to the coupon rate, so the bonds and are priced at par value. Bond Sam has five years to maturity, whereas Bond Dave has 18 years to maturity.

To see how changes in interest rates affect bond prices, assume that interest rates suddenly rise by 2 percent. What is the percentage change in the price of Bond Sam and Bond Dave?

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