COUPON RATE IS 5% and 10%

Consider 2 bonds, Bond A and Bond B. Both bonds are priced at face value of $1,000. Their annual coupon rates are [depends on the last digit of student ID*]

* If the last digit of your student ID is an odd number (for example XXXXXX3), bond A's annual coupon rate is 5% and bond B's annual coupon rate is 10%

If the last digit of your student ID is an even number (including 0) (for example XXXXXX0 or XXXXXX2), bond A's annual coupon rate is 6% and bond B's annual coupon rate is 12%.

Both bonds have 10 years to maturity and pay the coupons half-yearly. Demonstrate (by way of calculation) the % changes in price of each bond if :

(a) interest rate increases by 2% (1.5marks)

(b) interest rate decreases by 2% (1.5 marks)

(c) What is your conclusion? (0.5 marks)