bond j has a coupon rate of 3 percent and bond k has a coupon rate of 9 percent. Both bonds have 13 years to maturity, make semiannual payments, and have a YTM of 6 percent. what if rates suddenly fall by 2 percent instesd?

if interest rates fall by 2%

price of bond j will increase to $756.83, price change = $756.83 - $663.28 = $93.55 or 14.1%

price of bond k will increase to $1,317.99, price change = $1,317.99 - $1,224.47 = $93.52 or 7.64%

Explanation:

bond j coupon rate 3%, 13 years to maturity, semiannual payments, YTM 6%

bond k coupon rate 9%, 13 years to maturity, semiannual payments, YTM 6%

current market price of bond j:

YTM = {coupon + [(face value - market value)/n]} / [(face value + market value)/2]

0.03 = {15 + [(1,000 - market value)/26]} / [(1,000 + market value)/2]

0.015(1,000 + market value) = 15 + [(1,000 - market value)/26]

15 + 0.015market value = 15 + 35.46 - 0.038market value

0.05346market value = 35.46

market value = 35.46 / 0.05346 = $663.28

current market price of bond k:

YTM = {coupon + [(face value - market value)/n]} / [(face value + market value)/2]

0.03 = {45 + [(1,000 - market value)/26]} / [(1,000 + market value)/2]

0.015(1,000 + market value) = 45 + [(1,000 - market value)/26]

15 + 0.015market value = 15 + 65.46 - 0.038market value

0.05346market value = 65.46

market value = 65.46 / 0.05346 = $1,224.47

if YTM decrease by 2%, then:

new market price of bond j:

0.02 = {15 + [(1,000 - market value)/26]} / [(1,000 + market value)/2]

0.01(1,000 + market value) = 15 + [(1,000 - market value)/26]

10 + 0.01market value = 15 + 35.46 - 0.038market value

0.05346market value = 40.46

market value = 40.46 / 0.05346 = $756.83

new market price of bond k:

YTM = {coupon + [(face value - market value)/n]} / [(face value + market value)/2]

0.02 = {45 + [(1,000 - market value)/26]} / [(1,000 + market value)/2]

0.01(1,000 + market value) = 45 + [(1,000 - market value)/26]

10 + 0.01market value = 15 + 65.46 - 0.038market value

0.05346market value = 70.46

market value = 70.46 / 0.05346 = $1,317.99

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know