Consider the following four bonds:

i. 5 years to maturity, 0% coupon

ii. 20 years to maturity, 0% coupon

iii. 5 years to maturity, 5% coupon

iv.20 years to maturity, 5% coupon

A. Assuming the term structure is flat at 5%, compute the price of each bond i. to iv. [2 points]

B.What is the current yield for each bond from Part A? [2 points] C. Compute the new price and the percentage price change for each bond if the term structure instantaneously shifts from 5% to 5.5%. [2 points]

D. Compute the new price and the percentage price change for each bond if the term structure instantaneously shifts from 5% to 4.5%. [2 points] E. How does the bond coupon rate relate to the magnitude of the percentage price change in C. and D.? [2 points]

F. How does the term-to-maturity relate to the magnitude of the percentage price change in C. and D.? [2 points] G. Are the magnitudes of the percentage price changes in C. and D. different for each bond? If so, what contributed to that difference? [2 points]