Response to the following problem:
Consider two bonds, MM and NN:
¦ Bond MM has face value of $1,000, matures in five years, and pays 6% interest semiannually.
¦ Bond NN has a face value of $1,000, matures in five years, and pays 2% interest semiannually.
a. If the yield-to-maturity on these bonds changes from 4% to 6%, which bond's value changes the most?
b. Which bond has the greatest interest rate risk? Why?
c. Which bond has the greatest reinvestment rate risk? Why?