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Please show formulas used if possible. COMPARING TWO BONDS Bond A Bond B Market interest rate 3.1% 3 Coupon rate 4 Maturity 5 Face value

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COMPARING TWO BONDS Bond A Bond B Market interest rate 3.1% 3 Coupon rate 4 Maturity 5 Face value 6 Price 10% 20 1,000.00 1,000.00 1) Find the prices of bonds A and B. 2) Sketch out the cash flows of the bonds in a table 3) Create a data table that shows how the bond prices vary with the interest rate (use 0 to 10%, by 50 basis points). 4) Plot your data table. What do you notice about the shape of the bonds on the plot? Does this have a name? Why do you see these curves as they are i.e., what explains the relative shapes)? 12 13 14 15 16 18

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