The percentage changes in the prices of Bond Bill and Bond Ted are as follows:
When the interest rates rise by 3%:
Bond Bill Bond Ted
Percentage change in price -12.371% -22.377%
Data and Calculations:
Par Value $1,000 $1,000
Coupon rate 9.6% 9.6%
Maturity period 6 years 23 years
Interest payment Semiannual Semiannual
Periods of interest payment 12 46 (23 x 2)
Market rate 12.6% (9.6 + 3) 12.6% (9.6 + 3)
Price of bonds $876.29 $776.23
Change in price $123.71 $223.77
The percentage change in price = Change in Price/Old Price x 100
How are the prices of bonds determined?
The prices of bonds are determined by calculating the present value of the cash inflows till maturity.
The present value of the cash inflows from the bonds can be computed using an online finance calculator as follows:
Data and Calculations (Price of Bond Bill):
N (# of periods) = 12 (6 years x 2)
I/Y (Interest per year) = 12.6% (9.6 + 3)
PMT (Periodic Payment) = $48 ($1,000 x 9.6% x 1/2)
FV (Future Value) = $1,000
P/Y (# of periods per year) = 2
C/Y (# of times interest compound per year) = 2
Results:
PV = $876.29
Sum of all periodic payments = $576 ($48 x 12)
Total Interest $699.71
Learn more about determining the prices of bonds at https://brainly.com/question/25596583
