Consider two 30-year maturity bonds. Bond A has a coupon rate of 4%, while bond B has

Question:

Consider two 30-year bonds. Bond A has a rate of 4%, while bond B has a rate of 12%. Both bonds pay their coupons semiannually.
a. Construct an Excel spreadsheet showing the prices of each of these bonds for yields to ranging from 2% to 15% at intervals of 1 %. Column A should show the yield to (ranging from 2% to 15%), and columns B and C should compute the prices of the two bonds (using Excel's bond price function) at each interest rate.
b. In columns D and E. compute the percentage difference between the bond price and its value when yield to is 8%.
c. Plot the values in columns D and E as a function of the interest rate. Which bond's price is proportionally more sensitive to interest rate changes?
d. Can you explain the result you found in part (c)? Hint: Is there any sense in which a bond that pays a high rate has lower "average" or "effective" than a bond that pays a low rate?
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...