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Suppose there are two annual coupon corporate bonds. Bond 1 is a 10 year, 8% coupon bond, has an initial yield to maturity of 6%,
Suppose there are two annual coupon corporate bonds. Bond 1 is a 10 year, 8% coupon bond, has an initial yield to maturity of 6%, and a Face Value of $1000. Bond 2 is a 30 year, 8% coupon bond, has an initial yield to maturity of 6%, and a Face Value of $1000. a. Calculate the initial prices of bond 1 and bond 2. b. Now suppose that interest rates in the economy are rising due to inflation and the Federal Reserves' efforts to slow down inflation. Suppose that the yield to maturity for both bonds increase by 1% immediately (so N has not changed). Calculate the new prices of both bond 1 and bond 2 . c. Which bond's price changes by more (in terms of percentage change of the bond price) and why? One to two sentences should be able to answer this
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