Consider two risk-free coupon bonds A and B both having a
maturity of 10 years and a $1000-face value. Bond A has 6% annual
coupons while Bond B has 12% annual coupons. Suppose that the yield
to maturity decreases from 10% to 8%. (15pts)
(a) Calculate the price of each bond with a 10% YTM and an 8%
YTM respectively. What is the percentage change in the price of
each of these two bonds (A and B) resulting from the change in the
YTM? Show your work. (5pts)
(b) What conclusion can you reach? Explain your result.
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