**Answer:**

Use a financial calculator to find out the price of both bonds after the drop in interest rate.

**Laurel Bond**

When a bond is trading at par, it means that the interest rate is equal to the coupon rate.

Semiannual Coupon = (7.3% * 1,000) / 2 = $36.50

Terms till maturity = 4 * 2 = 8 semi annual periods

Interest rate = (7.3% + 2%) / 2 = 4.65%

Future value = $1,000 par value

Price will come out as $993.20

**Percentage change = (993.20 - 1,000) / 1,000 * 100%**

**= -0.68%**

**Hardy Bond **

Semiannual Coupon = (7.3% * 1,000) / 2 = $36.50

Terms till maturity = 23 * 2 = 46 semi annual periods

Interest rate = (7.3% + 2%) / 2 = 4.65%

Future value = $1,000 par value

Price = $811.53

**Percentage change = (811.53 - 1,000) / 1,000 **

**= -18.85%**