Bond A Bond B
Coupon Rate 5% 14%
Years-to-Maturity 10 10
Yield-to-Maturity 7% 7%
Interest Payments Semi- Semi-
Annual Annual
A] What is the current price of these bonds?
B] If the interest rates rise by 2%, what is the percentage price change of these bonds?
C] If the interest rates fall by 2%, what is the percentage price change of these bonds?
D] What does this problem tell you about the interest rate risk of lower-coupon bonds?