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1. Bond A and Bond B have 7% coupons and are priced at par value. Bond A has 3 years to maturity whereas Bond

1. Bond A and Bond B have 7% coupons and are priced at par value. Bond A has 3 years to maturity whereas Bond B has 20 years to maturity. If interest rates suddenly rise by 2%, what is the percentage change in the price of Bonds A and B? What if interest rates fall by 2% instead? What does this tell you about the interest rate risks of longer-term bonds? (Use Excel to solve this problem).

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