Consider the followingbonds:

Bond

Coupon Rate(annual payments)

Maturity(years)

A

0%

16

16

B

0%

8

8

C

4

4%

16

16

D

11

11%

8

8

a. What is the percentage change in the price of each bond if its yield to maturity falls from 6

6% to 5

5%?

b. Which of the bonds Aminus

D is most sensitive to a1% drop in interest rates from 6

6% to 5

5% andwhy? Which bond is leastsensitive? Provide an intuitive explanation for your answer.

Note: Assume annual compounding.