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Consider two bonds, both with 8% coupon rates (assume annual coupon payments) one with 10 years to maturity and the other with 20 years to
Consider two bonds, both with 8% coupon rates (assume annual coupon payments) one with 10 years to maturity and the other with 20 years to maturity. Assume that current market rates of interest are 8%. Calculate the difference in the change of the price of the two bonds if interest rates decrease to 6% one year after purchasing the bond. Repeat the procedure assuming that interest rates increase to 10% one year after purchase. Explain the major bond pricing principle that is being illustrated here
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