Compute the duration for bond C, and rank the bonds on the basis of their price volatility. The current rate of interest is 8 percent, so the prices of bonds A and B are

$1,000 and $1,268, respectively.

Bond Coupon Term Duration A 8% 10 years 7.25 B 12% 10 years 6.74 C 8% 5 years ?

Confirm your ranking by calculating the percentage change in the price of each bond when interest rates rise from 8 to 12 percent. (Bond A’s and B’s prices become $774 and

$1,000, respectively.)