QUESTION 5 For the following bonds, tell me if the bond will be a discount bond, a par bond, or a premium bond. You should be able to tell me the answers without any calculations. But if you can't, just try pricing a few bonds with these characteristics (make up a maturity). Bond Coupon Rate YTM 10% Bond A is a bond. Bond B is a bond. Bond C is a bond. QUESTION 6 Imagine two bonds. Both mature in 12 years, and have annual coupons. They both yield 10%. One has a coupon of 5% (call it the low coupon bond), and one has a coupon of 11% (call it the high coupon bond). Now imagine that the yield for both rises from 10% to 12%. Which bond will have the greatest price change in percentage terms? Answer below. Note that this is a question about interest rate sensitivity, and addresses something called the "coupon effect." (It is also really a duration question, which we will get to later in the course.) You may already know the answer to this. But if you don't you can simply do actual calculations using the bonds I describe above. Calculate the original price, then calculate the new price after the yield rises. The calculate percentage price changes. You will see the answer. The question you must answer is a true/false. The following statement is true or false: The high coupon bond will have the greatest percentage price change? True False