Problem $6-19$ Interest Rate Risk $[$LO $2]$

The market interest rate is $10\%.$ Both Bond Bill and Bond Ted have $10$ percent coupons,

make semiannual payments, and are priced at par value $($ $$1,000).$ Bond Bill has $7$ years

to maturity, whereas Bond Ted has $25$ years to maturity.

a$.$ If the market interest rate suddenly rises by $2$ percent, what will be the percentage

change in the price of these bonds?

b$.$ If the market rate suddenly falls by $2$ percent instead, what will be the percentage

change in the price of these bonds?

c$.$ Which of the two bonds has the greater price variablity in terms of percent?