Question: Bond value and changing required returns Bond X pays an 8% annual coupon and Bond Y pays a 4% annual coupon. Both bonds have 10

Bond value and changing required returns Bond X pays an 8% annual coupon and Bond Y pays a 4% annual coupon. Both bonds have 10 years to maturity. The yield to maturity for both bonds is now 8%.

a. If the interest rate suddenly rises by 2%, by what percentage will the price of the two bonds change?

b. If the interest rate suddenly drops by 2%, by what percentage will the price of the two bonds change?

c. Which bond has more interest rate risk? Why?

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