3. 20.

Interest rate risk [LO 7.2] Bond J has a coupon rate of 3 per cent.

Bond K has a coupon rate of 9 per cent. Both bonds have 14 years to maturity, make semiannual payments and have a YTM of 6 per cent. If interest rates suddenly rise by 2 per cent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 per cent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?