Question: Suppose that you are given the following information about two callable bonds that can be called immediately: You are told that both of these bonds

Suppose that you are given the following information about two callable bonds that can be called immediately:

You are told that both of these bonds have the same maturity and that the coupon rate of one bond is 7% and of the other is 13%. Suppose that the yield curve for both issuers is flat at 8%. Based on this information, which bond is the lower coupon bond and which is the higher coupon bond? Explain why.

Estimated Percentage Change in Price if Interest Rates Change by: -100 basis points +100 basis points Bond ABC +590 8% Bond XYZ +22% -16%

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