Interest rate risk and bond price changes Fidelity Music Inc. has an older high yield bond $($i$.$e$.$ junk bond$)$ issue

and a more recent investment grade bond issue. Fidelity's high yield $12\%$ coupon bonds have a YTM of $15\%$ and

will mature in $10$ years. The investment grade bonds have a $10\%$ YTM$,$ mature in $20$ years, and pay a $7\%$ annual

coupon. As a bond investor you would like to evaluate the bond price sensitivity to underlying interest rate

fluctuations for both Fidelity Music bond issues.

a$.$ What is the current price of both bonds?

b$.$ What will be the percentage change in bond price for both bonds if the underlying interest rates increase

by $2\%?$ Which bond has more price sensitivity to interest rate risk?

c$.$ Alternatively, what will be the percentage change in bond price for both bonds if the underlying interest rates

decrease by $2\%?$ Which bond has more price sensitivity to interest rate risk?

d$.$ What conclusions do you draw from comparing your answers to parts $b$ and $c?$

e$.$ Would your answers to parts b through c change if both bonds matured in $13$ years and paid a $12\%$ annual

coupon and, if so$,$ how?Interest rate risk and bond price changes$$ Fidelity Music Inc. has an older high yield bond$($i$.$e$.$ junk$$ bond$)$ issue and a more recent investment grade bond issue.$$ Fidelity's high yield $12\%$ coupon bonds have a YTM of $15\%$ and will mature in $10$ years. The investment grade bonds have a $10\%$YTM$,$ mature in $20$years$,$ and pay a $7\%$ annual coupon. As a bond investor you would like to evaluate the bond price sensitivity to underlying interest rate fluctuations for both Fidelity Music bond issues.

a$.$What is the current price of both$$ bonds?

b$.$What will be the percentage change in bond price for both bonds if the underlying interest rates increase by$2\%?$ Which bond has more price sensitivity to interest rate$$ risk?

c$.$Alternatively$,$ what will be the percentage change in bond price for both bonds if the underlying interest rates decrease by$2\%?$ Which bond has more price sensitivity to interest rate$$ risk?

d$.$What conclusions do you draw from comparing your answers to parts b and c$?$

e$.$Would your answers to parts b through c change if both bonds matured in $13$ years and paid a$12\%$ annual coupon$$ and, if$$ so$,$ how?