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Bond A has a 4% coupon. Bond B has a 10 percent coupon. Both bonds have 8 years to maturity, make annual payments, and have
Bond A has a 4% coupon. Bond B has a 10 percent coupon. Both bonds have 8 years to maturity, make annual payments, and have a YTM of 9 percent. If interest rates suddenly rise by 3 percent, what is the percentage price change in these bonds? What does this say about the interest rate risk of lower-coupon bonds?
Please show the formulas you used.
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