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2B. Both Bond B and Bond T have 5.8% coupons, make semiannual payments, and are priced at Par value. Bond B has 5 years
2B. Both Bond B and Bond T have 5.8% coupons, make semiannual payments, and are priced at Par value. Bond B has 5 years to maturity, whereas Bond T has 25 years to maturity. If interest rates suddenly rise by 2%, what is the percentage change in price of Bond B, and Bond T? Both bonds have a par value of $1000. If rates were suddenly to fall by 2% instead, what would be the percentage change in the price of Bond B and Bond T? What does this problem tell you about the interest risk of long-term bonds?
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