You have two bonds: Bond A and Bond B are both 10-year bonds with semi-annual payments (and pars of $1,000). For Bond A, the coupon rate is 6% for the first 5 years and 8% for the next 5 years; whereas for Bond B, the coupon rate is 8% for the first 5 years and 6% for the next 5 years. The current market interest rate is 7%.

a. Determine the intrinsic values of the two bonds.

b. Determine the (Macaulay) durations of the two bonds.

c. Discuss how the coupon rates affect the durations of the bonds.

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