As a financial security analyst consider Bond A that has just been issued. Its face value is $1,000 with coupon rate of 5% and matures in 10 years. Bond B was issued 5 years ago, when interest rates were higher. This bond has $1,000 face value with 7% coupon rate. When issued, this bond had a 15-year maturity, so its remaining maturity is 10 years. Assume annual coupon payments and a 9 percent yield to maturity on the bonds. Assume issuance date was 1^st January for both Bonds.

• Compute the price of the two bonds.
• Find the price of the two bonds using Excel function
• Compute the duration of bond A and bond B.
• Which bond has longer duration? Give reasons why.
• Giving reasons, state whether the two bonds are selling at a premium, discount or par and why
• Repeat (a) above assuming that the bonds pay semi-annual coupons