Compute the duration for bond C, and rank the bonds on the basis of their price volatility. The current rate of interest is 8 percent, so the prices of bonds A and B are $1,000 and $1,268, respectively.

Confirm your ranking by calculating the percentage change in the price of each bond when interest rates rise from 8 to 12 percent. (Bond A€™s and B€™s prices become $774 and $1,000,respectively.)

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Duration Coupon 8% 12% 8% Term 10 years 10 years 5 years Bond 7.25