FINANCE-The Faulk. Corp. has a 6% coupon bond outstanding.
QUESTION
The Faulk. Corp. has a 6% coupon bond outstanding. The Gonas Company has a 14% bond outstanding. both bonds have 12 years to maturity, make semi-annual payments, and have a YTM of 10%. If interest rates suddenly rise by 2%, what is the percentage change in the price of these bonds? What if interest rates suddenly fall by 2% instead? What does this problem tell you about the interest rate risk of lower coupon bonds?
ANSWER:
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