Assuming that you are buying two different coupon bonds: Alpha and Beta with following conditions: Alpha: - face value (par value) = $1000 - coupon rate= 10% - years to maturity= 5 - yield's to maturity (interest rate) = 10% - the current price of Alpha bond, Pe=? Beta: - face value (par value) = $1000 - coupon rate=10% years to maturity= 3 - yield's to maturity (iterest rate)= 10% - the current price of Beta bond, Py=? a- What are the prices of Alpha and Beta bonds? b- Now assume that at the beginning of the second year the interest rate in the financial market increases to 20%. What will be the new price of each bond? What would be the prices of these bonds if at the interest rate was the same as 10%? (Note: Now, the years to maturity for Alpha is 4 years, and for the Beta is 2 years.) C- What are your conclusions from part b d- Calculate the rate of return for each bond between the first year (t) and the second year (t +1) when interest rate increases to 20%? e- What is the rate of capital gain/loss of each bond? f- If the interest rate declines, which would you rather be holding, the long-term bond (Alpha) or short-term bond (Beta)? Why? Which type of bond has the greater interest-rate risk