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Example: Consider two bonds, a 3-year bond paying an annual coupon of 5% and 10-year bond also with an annual coupon of 5%. Both currently

Example: Consider two bonds, a 3-year bond paying an annual coupon of 5% and 10-year bond also with an annual coupon of 5%. Both currently sell at face value ($1000). Now suppose that interest rate rises to 10%

a. What is the new price of the 3-year bonds?

b. What is the new price of the 10-year bonds?

c. Which one of these bonds is more sensitive to a change in interest rates?

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