Market interest rates rise from 10% to 15%. Bond face value = $1000. Price each bond at 10% and then at 15%. (For example: For bond in d, at r=10%, bond value = $200/1.10 1 + $1200/1.10 2 = $1173.55.) Also, show the % gain or loss (i.e., divide the end value at 15% by the value at 10%, and subtract 1.)

A. What happened to the bond values as interest rates rose from 10% to 15%?

B. Which bond, a or b, gained/lost proportionately more as interest rate rose?

C. Which bond, c or d, gained/lost proportionately more as interest rate rose?

Bond a. 1-yr. 10% coupon bond b. 30 -yr., 10% coupon bond c. 2-yr, zero coupon bond d. 2yr,20% coupon bond