Question: This problem investigates the sensitivity of the prices of bonds carrying differing coupon rates to interest rate changes. Bonds K and L both have a

This problem investigates the sensitivity of the prices of bonds carrying differing rates to interest rate changes. Bonds K and L both have a of $1000 and 15 years remaining until maturity. Their rates are 6% and 8% respectively. If the prevailing market rate decreases from 7.5% to 6.5% compounded semiannually, calculate the price change of each bond:
a. In dollars.
b. As a percentage of the initial price.
c. Are high-coupon or low-coupon bonds more sensitive to a given interest rate change? Justify your response using the results from Part (b).

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