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Bond A makes semiannual paymentsand is currently trading at par. The bond pays a coupon rate of 8.6 percent and has 5 yearsto maturity. Bond

Bond A makes semiannual paymentsand is currently trading at par. The bond pays a coupon rate of 8.6 percent and has 5 yearsto maturity.

Bond B also makes semiannual payments and is currently tradingat par. The bond pays a coupon rate of 8.6 percent and has 15 years to maturity.

Calculate the price of both bonds if interest ratesfall by 2% and increaseby 2% (so that you have 3 different prices for each bond, including the current price at par). Which bond is more sensitive to changes in interest rates?

Comment on why.

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