Answer:
a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam and Bond Dave?
b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of Bond Sam and Bond Dave?
Explanation:
Bond Sam
using an excel spreadsheet I calculated the new market value (present value) if interest increases by 2% ⇒ 4% semiannual, 7 cash flows of $3, one last cash flow of $103:
using an excel spreadsheet I calculated the new market value (present value) if interest decreases by 2% ⇒ 2% semiannual, 7 cash flows of $3, one last cash flow of $103.
Bond Dave
using an excel spreadsheet I calculated the new market value (present value) if interest increases by 2% ⇒ 4% semiannual, 37 cash flows of $3, one last cash flow of $103:
using an excel spreadsheet I calculated the new market value (present value) if interest decreases by 2% ⇒ 2% semiannual, 37 cash flows of $3, one last cash flow of $103.