Question 3. (1000 words maximum, 30 marks in total) a) By showing your calculations, justify which bond will be more sensitive to interest rate changes: Par value Term to maturity Annual coupon rate Frequency of coupon payment per year Yield of bonds in similar risk class Bond A ,1,000 5 years 4% Twice 4% Bond B 1,000 5 years 5% Once 8% (10 marks) b) Critically discuss several ways that can be implemented to estimate and manage bond's interest rate risk in the context of bond investment or financing strategy. (10 marks) c) Describe some embedded options that can be added to bonds and critically discuss potential advantages to bond issuers and/or bondholders. (10 marks) Question 3. (1000 words maximum, 30 marks in total) a) By showing your calculations, justify which bond will be more sensitive to interest rate changes: Par value Term to maturity Annual coupon rate Frequency of coupon payment per year Yield of bonds in similar risk class Bond A ,1,000 5 years 4% Twice 4% Bond B 1,000 5 years 5% Once 8% (10 marks) b) Critically discuss several ways that can be implemented to estimate and manage bond's interest rate risk in the context of bond investment or financing strategy. (10 marks) c) Describe some embedded options that can be added to bonds and critically discuss potential advantages to bond issuers and/or bondholders. (10 marks)