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Common elements for each bond: Coupon: 7.5%, semi-annual coupon payments, YTM = 9% Bond A: Time to maturity: 5 years Bond B: Time to maturity:

Common elements for each bond: Coupon: 7.5%, semi-annual coupon payments, YTM = 9%

Bond A: Time to maturity: 5 years

Bond B: Time to maturity: 15 years

Consider these two bonds. Compute the interest rate sensitivity of each bond. Which bond has the lower sensitivity to changes in interest rates? For which bond is the rate of change in duration nonlinear? Explain briefly.

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