Problem 7.19 – Interest Rate Risk and Bond Price Changes for Different Maturities

Fundamentals of Corporate Finance

Ross, Westerfield, and Jordan

13th Edition

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Difficulty – Medium

Calculate the percentage change in the price of two bonds with the same coupon rate, payment frequency, and par value but different maturities, given a sudden increase or decrease in interest rates. Illustrate the results by graphing bond prices against YTM and discuss the interest rate risk of longer-term bonds.

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