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# Analyzing the impact of interest rate change on prices

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Interest Rate Sensitivity

A bond trader purchased each of the following bonds at a yield to maturity of 9%. Immediately after she purchased the bonds, interest rates fell to 5%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table. Round your answers to two decimal places.

Price @ 9% Price @ 5% Percentage Change
10-year, 10% annual coupon \$ \$ %
10-year zero %
5-year zero %
30-year zero %
\$100 perpetuity %

#### Solution Preview

A bond trader purchased each of the following bonds at a yield to maturity of 9%. Immediately after she purchased the bonds, interest rates fell to 5%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table.
1) 10-year, 10% annual coupon
Face value of bond=M=\$1000
Coupon amount=C=1000*10%=\$100
Number of periods=n=10
YTM=r=9%
Price of ...

#### Solution Summary

This solution depicts the steps to calculate the price changes due to variation in interest rate for the given cases.

\$2.19