Consider the following bonds: Bond Coupon Rate (annual payments) Maturity (years) A 0% 16 B 0% 8

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Consider the following bonds:

Bond Coupon Rate (annual payments) Maturity (years)

A 0% 16 B 0% 8 C 4% 16 D 7% 8

a. What is the percentage change in the price of each bond if its yield to maturity falls from 6% to 5%?

b. Which of the bonds A–D is most sensitive to a 1% drop in interest rates from 6% to 5% and why? Which bond is least sensitive? Provide an intuitive explanation for your answer.

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Corporate Finance

ISBN: 9781292304151

5th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

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Question Posted: Jun 16, 2024 04:19 AM

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Consider the following bonds: Bond Coupon Rate (annual payments) Maturity (years) A 0% 16 B 0% 8

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Corporate Finance

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