Question: Consider two bonds, Bond A and Bond B, both with a coupon rate of 10 percent and a yield to maturity of 10 percent. These

  1. Consider two bonds, Bond A and Bond B, both with a coupon rate of 10 percent and a yield to maturity of 10 percent. These are standard bonds with semiannual coupon payments. Bond A matures in 5 years; Bond B matures in 10 years. What is the price of each bond?
  2. Consider the bonds in question 1. Suppose interest rates decline, causing the yield to maturity for each bond to immediately decline to 9 percent. What is the new price of each bond? (Hint: Consider the semiannual yield to maturity.)

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