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An investor is considering the purchase of one of two bonds. Linton Company bonds and Manner Company bonds each have 10 years to maturity, and
An investor is considering the purchase of one of two bonds. Linton Company bonds and Manner Company bonds each have 10 years to maturity, and pay annual coupons. Linton bonds are 6% coupon bonds, and Manner bonds are 12% coupon bonds and each has a 10% yield to maturity. What is the price of each bond? What is the percentage change in price for each bond if interest rates rise by two percent? What does this tell you about the price sensitivity of bonds with different coupon rates?
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