Consider the following? bonds: Bond Coupon Rate?...
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Accounting
Consider the following? bonds:
| Bond | Coupon Rate? (annual payments) | Maturity? (years) |
| A | ?0% | 14 |
| B | ?0% | 10 |
| C | 2?% | 14 |
| D | 7?% | 10 |
a. What is the percentage change in the price of each bond if its yield to maturity falls from
5%
to
4?%?
b. Which of the bonds
Aminus?D
is most sensitive to a? 1% drop in interest rates from
5?%
to
4?%
and? why? Which bond is least? sensitive? Provide an intuitive explanation for your answer.
Note?:
Assume annual compounding.
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