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Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A has 30 years to

  1. Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A has 30 years to maturity and bond B has five (5) years to maturity. Please demonstrate your understanding of interest rates risk by answering the following questions:
  1. Discuss which bond will trade at a higher price in the market
  2. Discuss what happens to the market price of each bond if the interest rates in the economy go up.
  3. Which bond would have a higher percentage price change if interest rates go up?
  4. Please substantiate your argument with numerical examples.
  5. As a bond investor, if you expect a slowdown in the economy over the next 12 months, what would be your investment strategy?

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