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Question 1 (8 marks) Consider two bonds A and B. Both bonds has the same face value of $60000 and the same maturity ( 3
Question 1 (8 marks) Consider two bonds A and B. Both bonds has the same face value of $60000 and the same maturity ( 3 years). Both bonds also have the same annual coupon interest of 6%. Bond A is a bullet bond (repaid at maturity) while Bond B is repaid annually with equal installments ( $20000 per year). Both bonds are selling at par. Calculate the duration and the volatility of the bonds. How much will the price change if the yield decreases by 1 percentage point? Which bond is more sensitive to interest rate changes? Why
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