Assume that there is a flat yield curve where the current interest rate on all government bonds is 10% per annum. The government has just issued 1-year, 2-year, 5-year, and 10-year bonds, all offering an interest rate of 10%, a face value of $100, and paying interest once per annum. Calculate the market price for each of these bonds, assuming that immediately following the purchase of the bonds at $100 there is either a parallel upward movement in the yield curve to 12 percent per annum or a parallel downward movement in the yield curve to 8 percent per annum. 

Explain the effect of an interest rate change on bond prices taking into consideration the different maturities.

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