The University of California has two bonds outstanding. Both issues have the same credit rating, a face value of $1,000 and a coupon rate of 3%. Coupons are paid twice a year. Bond A matures in 1 year, while bond B matures in 30 years.

The market interest rate for similar bonds is 7%.

1.What is the price of bond A?

2.What is the price of bond B?

3.Now assume that yields increase to 10%. What is the price of bond A?

4.What is the price of bond B now?

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