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  3. you are given two bonds. bond a pays 5% annual cou

You are given two bonds. Bond A pays 5% annual coupon. The maturity of the...

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Finance

You are given two bonds. Bond A pays 5% annual coupon. The maturity of the bond is 20 years, face value is $1,000, and YTM is 7%. Bond B pays 5% annual coupon. The maturity of the bond is 20 years, face value is $1,000, and YTM is 8%.

  1. Which bond will have a higher sensitivity to interest rates, Bond A or Bond B? Explain.

  1. Calculate the price of the most sensitive bond (from part a).

  1. Graph the actual % change in bond price with respect to the change in YTM (%) for the most sensitive bond. X-axis = Change in YTM (%). Y-axis = % change in bond price.

  1. Calculate the duration, modified duration and convexity for the most sensitive bond.

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