Bond A Has a par value of $1,000. Has a coupon rate of 5 percent with coupon payments made annually The initial required rate of return, k, is 9 percent. Bond B Has a par value of $1,000. Has a coupon rate of 10 percent with coupon payments made annually. The initial required rate of retum, k, is 9 percent. . Suppose the federal government announces that it will be running a smaller budget deficit than it anticipated, which results in an investor's required rate of return on a bond to decrease to 7% Using this information, aw in the values for the percentage change in band price, percentage change in k, and band price elasticity for each band in the table. Percentage Change in Bond Price Percentage Change in Bond Price Elasticity (P.) Bonds: Bond A Bond B Initial Price of Bonds when k = 99 $743.29 $1,064.18 Price of Bonds when k75 $859.53 $1,210.71 Now suppose that instead the federal government announces that it will be running a larger budget dende than it antiopated, which results in an Investor's required rate of return on a bond to increase to 12% Using this information, w in the values for the percentage change in bond price, percentage change in k, and bond price elasticity for each bond in the rable. Bonds with a Coupon Rate of: Bond A Price of Bonds when k = 1256 $604.45 Percentage Change in Bond Price Percentage Change in Initial Price of Bonds when = 9 $743.29 $1,064.16 Bond Price Elasticity (PA) Bond B 5887.00 in each scenario, which reflects relationship Based on the calculations, it can be said that the bond price elasticity is between interest rate movements and bond price movements The price elasticity of bond A with a required rate of return of 12 percent can be interpreted as: A1 percent increase in interest rates leads to a 0.499 percent decrease in the price of the bond. A1 percent increase in interest rates leads to a 0,560 percent increase in the price of the bond! Al percent increase in interest rates leads to a 0.50 percent decrease in the price of the bond, 1 percent decrease in interest rates leads to a 0.560 percent decrease in the price of the bond. Based on the calculations, it can be said that a bond with a low required rate of return is of retum price sensitive than a bond with a high required rate