2. Continental Transportation Co. (CTC) bond carries an 8% coupon rate, with semi-annual coupon payment, and exactly 8 years to maturity. The risk free rate is 3% and investors require a 4% risk premium based on its BB rating. Because of the economic forecast, Federal Reserve will cut the risk free rate to 2.5% this week. What is the bond price before and after the rate cut? What is the price sensitivity to YTM of this CTC bond?

3. Continue from Q2, suppose CTC also has another A rating bond (all other characters are the same as the BB rating bond) on which investors require 2.5% risk premium. What is this bonds price sensitivity to YTM?