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11. Start with a situation in which there are two 10-year bonds: bond A with a 7.62% and bond B with a 9.41% coupon. The
11. Start with a situation in which there are two 10-year bonds: bond A with a 7.62% and bond B with a 9.41% coupon. The bonds are of different credit quality, so they trade in separate markets. Suppose the initial market interest rate is 8.03% for bond A and 9.12% for bond B. The par is $1,000. (a) Find the price of each bond. (b) Suppose the market interest rate for each bond increases by .50%. For each bond, find the new price and percentage change in the price. What is the relationship among the bonds in terms of bond price sensitivity, i.e. interest rate risk? (c) Suppose the market interest rate for each bond decreases by .35%. For each bond, find the new price, and percentage change in the price as compared to the initial prices found in (a)
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