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Suppose the yield curve is flat at 10%. a) What is the price of bond 1 that pays $2000 in year 1, $100 in year

Suppose the yield curve is flat at 10%.

a) What is the price of bond 1 that pays $2000 in year 1, $100 in year 2, and $100 in year 3?

b) What is the price of bond 2 that pays $100 in year 1, $100 in year 2, and $2000 in year 3?

c) What are the prices of bond 1 and bond 2 if the yield curve rises from 10% to 15%?

d) Based on your calculations above, which of the two bonds face more interest rate risks? Why?

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