TIM Bond and CAP Bond are very popular in Canada

Finance Aug 07, 2020

TIM Bond and CAP Bond are very popular in Canada. TIM Bond is a 3% coupon bond. CAP Bond is a 9% coupon bond. Both bonds have 15 years to maturity, make semi-annual payments and have a YTM of 6%. If interest rates suddenly rise by 2%, what is the percentage price change of these bonds? What if rates suddenly fall by 2% instead? What does this problem tell you about the interest rate risk of lower coupon bonds?

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