Question
4. Answer the below questions for bonds A and B (assume they pay interest semiannually). Bond A Bond B Coupon 8% 9% Yield to maturity
4. Answer the below questions for bonds A and B (assume they pay interest semiannually). Bond A Bond B Coupon 8% 9% Yield to maturity 8% 8% Maturity (years) 2 5 Par $100.00 $100.00 Price $100.00 $104.055 (a) Calculate the actual price of the bonds for a 100-basis-point increase in interest rates. (b) Using duration, estimate the price of the bonds for a 100-basis-point increase in interest rates. (e) Without working through calculations, indicate whether the duration of the two bonds would be higher or lower if the yield to maturity is 10% rather than 8%.
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