You are examining two bonds: Bond A Bond B

Coupon rate (semiannual coupon) 6.36% 6.36%

Maturity 11 years 5 years

Yield to maturity 6.36% 6.36%

REQUIRED:

1. Calculate the price of these two bonds on the basis of a face value of $1,000.

2. Now assume that the yield for both bonds falls by 100 basis points (100 BP = 1.00%). What is the change in price of bond A? What is the change in price of bond B?

3. Now assume that the yield for both bonds increases by 100 basis points. What is the change in price of bond A? What is the change in price of bond B?

4. Are there any observations you can make from this?