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Using the following information to answer the following questions? Both Bond A and Bond B have...

Using the following information to answer the following questions?

Both Bond A and Bond B have 8 percent coupons, make semiannual payments, and are priced at par value. Bond A has 3 years to maturity, whereas Bond B has 20 years to maturity.

a. If interest rates suddenly rise by 2 percent annually (to 10% annually right now), what would be the percentage changes in the prices of Bond A and Bond B?

b. If rates were to suddenly drop by 2 percent instead (to 6% right now), what would be the percentage changes in the prices of Bond A and Bond B?

c. What does this problem tell you about the interest rate risk of long-term bonds?

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Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

As nothing was mentioned excel is used.

jeff jeffy answered 1 year ago
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