5. Consider the following bonds: + Bond A Coupon rate (annual payments zero B zero 2.0% 2.5 Bond maturity (years) 10 15 10 15 a. Compute the percent change in the price of each bond if its yield to maturity falls from 3% to 2%. b. Explain which of the bonds is most sensitive to a 1% drop in interest rates from 3% to 2%, which is least sensitive, and why. Answer a. Use the simple perpetuity formula, payment/discount rate, for the zero coupon bonds and the annuity formula plus the present value of the return of the principal, for the coupon bonds. Assume bonds have a face value of $100, although this does not matter. Value at 3% Value at 2% Percentage change in value from 3% to 2% Bond A B Slalo b