Use the information for the two following bonds to answer the questions.

Bond A: 5-year annual coupon bond with coupon rate 10%, Yield-To-Maturity 7%,

face value =$1000

Bond B: 5-year zero coupon bond, Yield-To-Maturity 7%, face value =$1000

a. Which bond has higher interest rate sensitivity? Explain your answer using the bonds

characteristics (no calculation is required). (5 points)

b. Calculate durations of the above bonds (Draw the tables for your answers). (10 points)

c. Use the results in b, estimate bond As price if interest rate decreases by 5%. How about

bond Bs price with the same rate decrease? (10 points)