Your mission is to explore HOW coupon rate of a bond impacts its Interest Rate

Risk$/$Sensitivity$.$ To complete this mission, you have the following:

$(1)$ A semi$-$annual HiCR bond that has $20$ years until maturity, $$1,000$ par value, and

$20\%$ coupon rate.

$(2)$ A semi$-$annual Lo CR bond that has $20$ years until maturity, $$1,000$ par value, and $0\%$

coupon rate.

TO EXPLORE HOW coupon rate of a bond impacts its Interest Rate Risk, examine the following:

$(1)$ Calculate bond prices for the above $2$ bonds when interest rate is $8\%.$

$(2)$ Would the price of the $20\%$ CR bond go UP$,$ stay FLAT, or go DOWN when interest rate

goes UP from $8\%$ to $10\%?$ and more importantly HOW do you know for sure? $($Hint:

you can recalculate the bond price for the new interest rate$)$

$(3)$ Would the price of the $0\%$ CR bond go UP$,$ stay FLAT, or go DOWN when interest rate

goes UP from $8\%$ to $10\%?$ and more importantly HOW do you know for sure? $($Hint:

you can recalculate the bond price for the new interest rate$)$

$(4)$ When interest rate changes from $8\%$ to $10\%,$ which of the above bonds has larger

percentage price change $($you can use the NOO formula to calculate any rate of

change, such as the percentage price change in this case$)?$

Conclusion: From this mission, how would you describe the impact of coupon rate on a bond's interest

rate sensitivity $($interest rate risk$)?$