Question: Consider 2 bonds, A and B. The coupon rates are 10% and the face values are $1,000 for both bonds. Both bonds have annual coupons.

Consider 2 bonds, A and B. The coupon rates are 10% and the face values are $1,000 for both bonds. Both bonds have annual coupons. Bond A has 15 years to maturity while bond B has 25 years to maturity.

a) What are the prices of the two bonds if the relevant market interest rate for both bonds is 11%?

b) What are the prices of the two bonds if the relevant market interest rate increases to 12.9%?

c) What are the prices of the two bonds if the relevant market interest rate decreases to 7.6%?

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