P2 a) Please come up with a detailed explanation about how to make the graph. Thanks!

First, consider a 10 year bond with a coupon rate of 7% and annual coupon payments. Draw a graph showing the relationship between the price and the interest on this bond. The price should be on the y-axis and the interest rate on the x-axis. To compute the various prices, consider interest rates between 2% and 12% (use 0.5% increments). So your x-axis should go from 2%, then 2.5% until 11.5% and then 12%.

Is the relationship linear (i.e. is the slope constant)? Start at 7%. If interest rates go up or down by 0.5% is the price changing by the same amount? What type of relationship do we observe between prices and interest rates (liner, concave, convex or something else)?