1. Consider the following 3 semiannual bonds with par $1,000: Bond A: 5-year bond with coupon rate 6% Bond B: 10-year bond with coupon rate 6% Bond C: 10-year bond with coupon rate 10%

Step 1: (1.5 points) Calculate the prices of Bond A, Bond B, and Bond C based on the required yield=7%.

Step 2: (1.5 points) For each bond (Bond A, Bond B, or Bond C), conduct a scenario analysis through "Data Table" to report the bond's price at yields 3.5%, 4%, 4.5%, 5%, 5.5%, 6%, 6.5%, 7%,7.5%, 8%, 8.5%, 9%, 9.5%, and 10%.

Step 3: (1.5 points) Setting the case at yield 7% as the benchmark (P_0 case). Calculate the dollar price change for each bond at each new yield level following the formula: "Dollar Price Change"= P_t-P_0

Step 4: (1.5 points) (1) Select a case to verify: For a given term to maturity and initial yield, the higher the coupon rate, the higher the dollar price change. (2) Select a case to verify: For a given coupon rate and initial yield, the longer the term to maturity, the higher the dollar price change.

Step 5: (1.5 points) Setting the case at yield 7% as the benchmark (P_0 case). Calculate the relative price change for each bond at each new yield level following the formula: "Relative Price Change"= (P_t-P_0)/P_0 Step 6: (1.5 points) (1) Select a case to verify: For a given term to maturity and initial yield, the higher the coupon rate, the lower the relative price change. (2) Select a case to verify: For a given coupon rate and initial yield, the longer the term to maturity, the higher the relative price change.

2. Yield value of a price change is defined as the change in yield for $X change in price. Assuming the par value is $1,000, what is the yield value of a $25 decrease of the following two bonds? (6 points) (1) A 7-year 5% semiannual bond with initial YTM 7.5%. (2.5 points) (2) A 7-year 10% semiannual bond with initial YTM 7.5%. (2.5 points) Which bond has higher percentage price volatility? Comment. (1 point)