Bond A is a 8% coupon (paid semi-annually), 4-year bond with a face value of $100. Bond B is a 6% coupon (paid semi-annually), 4-year bond with a face value of $100. Bond C is a 8% coupon (paid semi-annually), 2-year bond with a face value of $100. The yield curve is flat at 8% per annum.

(i) Compute the current price of bond A.

(ii) Compute the new price of bond A if the yield curve falls to 7% and if the yield curve jumps to 9%. What are the respective percentage price changes?

(iii) Compute the current price of bond B.

(iv) Compute the new price of bond B if the yield curve falls to 7%. What is the percentage price change? How does it compare to the price change in (ii)?

(v) Compute the current price of bond C. (vi) Compute the new price of bond C if the yield curve falls to 7%. What is the percentage price change? How does it compare to the price change in (ii)? (vii) Briefly explain the relationship between price changes, coupon rates and time to maturity.