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Bond P is a 12 percent coupon bond that is selling at a premium. Bond D is a 6 percent coupon bond currently selling at

Bond P is a 12 percent coupon bond that is selling at a premium. Bond D is a 6 percent coupon bond currently selling at a discount. Both bonds make semi-annual payments, have a YTM of 9 percent and have 5 years to maturity.

a. What is the current yield for bond P?

b. What is the current yield for bond D?

c. Assume the YYM decreases to 8%. Which bond is more sensitive to changes in the market interest rate making the bond riskier? Show your work!

(fully solved, no excel or calculator shortcuts)

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