Problem 7.20 – Interest Rate Risk and Bond Price Changes for Different Coupon Rates

Fundamentals of Corporate Finance

Ross, Westerfield, and Jordan

13th Edition

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Difficulty – Medium

Calculate the percentage price change of two bonds with different coupon rates but the same time to maturity, payment frequency, and YTM, given a sudden increase or decrease in interest rates. Discuss the interest rate risk of lower-coupon bonds.

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