Bond price elasticity

Suppose you want to compare the price sensitivity of two $10-$year bonds.

Band $A$

Has a par value of $$1,000.$

Has a coupon rate of $5$ percent weth coupon payments made amually.

The initial required rate of return, $k_3$ is $10$ percent.

Bond $B$

Has a par value of $$1,000.$

Has a coupon rate of $10$ percent wath coupon payments made annually.

The initial required rate of return, $k,$ is $10$ percent.

Suppose the US$.$ announces that it expects the unemployment rate to increase significantly this year, which results in en investor's requirted rate of return on a bond to decrease to $6\%$

Using this information, inl in the values for the percentage change in bond price, percentage change in $k,$ and bond price elastioity far each bond in the table

Now syppose that instead the U$.$S$.$ announcos that it expets the criemplymert rate to decrease significantly this year, which results in an investor's required rate of retum on a bond to ircrease to $12$ n$.$

Using this information, ofl in the values for the percentage change in bond arice, percentage chanje in te$,$ and bond price elasticty for each bond in the table

The price elasticily of bord A with a required rate of return of $6$ parcent cen be interpitied as:

A $1$ percent increase in internat rotes leads to a $0\mathrm{.}735$ percent decrease in the price of the bond.

A $1$ percert incedse in interest rate leads to a $0\mathrm{.}843$ percent increase in the price of the bond.

A $1$ percest increase in interes sate leads to: $0\mathrm{.}843$ perant ascrease in the price of the bund. ureture.