Apex Corp. has two outstanding bond issues. One issue consists of 5% annual coupon bonds and the other issue consists of zero-coupon bonds. For each bond issue, calculate the bond prices and percentage change in prices when the required rate of return changes from 5% to 6%.

a. Ten years to maturity and the required rate of return goes from 5% to 6%.

b. Twenty years to maturity and the required rate of return goes from 5% to 6%.

c. Ten years to maturity and the required rate of return goes from 5% to 4%.

d. Twenty years to maturity and the required rate of return goes from 5% to 4%.

e. Compare and contrast your answers for parts a through d and comment on your observations.

- The ________ bond's price is more sensitive to interest rate risk because it has a ______ coupon rate.

- Regardless of the level of interest rate risk for given bond, the magnitude of the price change that results from an increase in underlying interest rates is ______ than the price change that results from a decrease in interest rates.