Consider the following bonds: Bond Coupon Rate...
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Finance
Consider the following bonds:
| Bond | Coupon Rate (annual payments) | Maturity (years) |
| A | 0% | 15 |
| B | 0% | 12 |
| C | 5% | 15 |
| D | 10% | 12 |
a. What is the percentage change in the price of each bond if its yield to maturity falls from 7% to 6%?
b. Which of the bonds AD is most sensitive to a 1% drop in interest rates from 7% to 6% and why? Which bond is least sensitive? Provide an intuitive explanation for your answer.
Note: Assume annual compounding.
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