Question: Interest Rate Risk There are two bonds issued by Smith Inc. You buy one share of each by paying the market price. Ignore commission. The

Interest Rate Risk

There are two bonds issued by Smith Inc. You buy one share of each by paying the market price. Ignore commission. The bond details are provided below:

-Bond Long: Face value = $1,000, Coupon = 9% annual, Price = $1,000, Maturity = 20 years.

-Bond Short: Face value = $1,000, Coupon = 9% annual, Price = $1,000, Maturity = 2 years.

The market interest rates suddenly drop by 2%. And you sell both the bonds. (Using Finance Calculator)

What is the profit (or loss) percentage realized for Long?

What is the profit (or loss) percentage realized for Short?

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