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Interest Rate Risk: Bond J has a Coupon Rate of 3%. Bond K has a Coupon Rate of 9%. Both bonds have 18 years to
Interest Rate Risk: Bond J has a Coupon Rate of 3%. Bond K has a Coupon Rate of 9%. Both bonds have 18 years to maturity, make semi-annual payments, and a Yield to Maturity of 6%. If interest rates suddenly rise by 2% what is the percentage price change of these bonds? What if rates suddenly fall by 2% instead? What does this problem tell you about the interest rate risk of lower coupon bonds?
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