Answer:
Bond's A price will decrease by 27.09%
Bond's B price will decrease by 24.25%
Explanation:
Bond's A current price: should be 1,000, since he market price = coupon rate
Bond's B current price: using an excel spreadsheet we can calculate the net resent value: =NPV(2.5%,55... fifteen times,1055) = $1,391.65
If the market rate increases to 5%
Bond's A current price: using an excel spreadsheet we can calculate the net resent value: =NPV(5%,25... fifteen times,1025) = $729.06
Bond's B current price: using an excel spreadsheet we can calculate the net resent value: =NPV(5%,55... fifteen times,1055) = $1,054.19
Bond's A price will decrease by: [($729.06 - $1,000) / $1,000] x 100 = -27.09%
Bond's B price will decrease by: [($1,054.19 - $1,391.65) / $1,391.65] x 100 = -24.25%
