Question: Question 4. [10 points Both Bond A and Bond B have 8 percent coupons, make semiannual payments, and are priced at par value. Bond A

Question 4. [10 points Both Bond A and Bond B have

Question 4. [10 points Both Bond A and Bond B have 8 percent coupons, make semiannual payments, and are priced at par value. Bond A has 2 years to maturity, whereas Bond B has 11 years to maturity. (a) If interest rates suddenly rise by 3 percent, what is the percentage change in the price of Bond A? [3 points] Answer (a): Justify your answer: (b) If interest rates suddenly rise by 3 percent, what is the percentage change in the price of Bond B? [3 points) Answer (b): Justify your answer: (c) If rates were to suddenly fall by 3 percent instead, what would the percentage change in the price of Bond A be then? [3 points) Answer (c): Justify your answer: (d) If rates were to suddenly fall by 3 percent instead, what would the percentage change in the price of Bond B be then? [3 points] Answer (d): Justify your answer: (e) What relation is illustrated? Interpret your results (4 points)

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