Item 7

10 points

Item 7

Item 7 10 points

Both Bond A and Bond B have 8.6 percent coupons and are priced at par value. Bond A has 8 years to maturity, while Bond B has 18 years to maturity.

a. If interest rates suddenly rise by 1.2 percent, what is the percentage change in price of Bond A and Bond B? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

b. If interest rates suddenly fall by 1.2 percent instead, what would be the percentage change in price of Bond A and Bond B? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)