(Bond price) Consider the following two bonds:

a. Assume the market interest rate is 6%. What is the price of each bond?

b. Make a table comparing the bond prices when the market interest rate varies from 0%, 1%, . . ., 5%, 6%, . . ., 20%. Use the template below, which may be found on the companion website. Make sure that when the market interest rate is 5%, both bonds are valued at $1,000.

c. Can you conclude that “the longer-term bond’s price is more sensitive to changes in the market interest rate?” Explain using a graph.

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Bond A Term to maturity: 10 years from today Face value: $1,000 Coupon: 5%, interest payments to be made in . 1 year from today, 2 years from today,..., 10 years from today Repayment of bond: On last coupon date Bond B Term to maturity: 20 years from today Face value: $1,000 Coupon: 5%, interest payments to be made in 1 year from today, 2 years from today,..., 20 years from today . Repayment of bond: On last coupon date