1) Calculate the yield to maturity for the four bonds on January 1, 2013, respectively.

2) Based on the macroeconomic data released by the National Bureau of Economic Research,

Ms. Brown expected that inflation rate will increase by 2%. Hence, she expected that yield to

maturity for the four bonds will increase by 2% too. She asked Jennifer to calculate prices of

the four bonds if the yield to maturity increases by 2%, respectively.

3.) Since Bond A and Bond B have the same coupon rates, Ms. Brown asked Jennifer to compare

which bond price will drop more when the yield to maturity increases by 2%? Since Bond C

and Bond D have the same maturity date, Ms. Brown asked Jennifer to compare which bond

price will drop more when the yield to maturity increases by 2%?

4.) Based on the results in 1) through 4), Jennifer needed to report which bonds have higher

interest rate risk and why.

Please Show work!

Bond A Bond B Bond CBond D 105 7.4 120 7.4 104 3.75 125 10.375 Price on January 1, 2013 Annual coupon rate (%) Maturity date Par value 123120461231/2021 1231/2025 1231/2025 S1,000 $1,000 $1,000 Coupon payment frequency Semiannual Semiannual_ SemiannualSemiannual Rating Coupon payment frequency rSemiannual