II$.$ Question $2($Bond$)$

Consider the following two bonds:

Bond A:

Term to maturity: $10$ years from today

Face value: $$1,000$

Annual Coupon rate: $6\%$

Number of payments per year: $1$

Bond B:

Term to maturity: $20$ years from today

Face value: $$1,000$

Annual Coupon rate: $10\%$

Number of payments per year: $1$

Compute the price for each bond. The current market interest rate for the bonds is

$8\%.$ Assume that YTM of each bond equals the current market interest rate. Then

make a table comparing the bond prices when the YTM varies from $1\%,2\%$dots$17\%.$

Compute duration and modified duration for each bond.

Use $($modified$)$ duration to estimate the percentage change of price for each bond if

the YTM increases from $8\%$ to $12\%.$