problem 6-27 interest rate risk (lo3) consider two 30-year maturity bonds. bond a has a coupon rate of 4%, while bond b has a coupon rate of 12%. both bonds pay their coupons semiannually. compute the prices of the two bonds at each interest rate. suppose bond a is currently priced to offer a yield to maturity of 8%. calculate the (percentage) capital gain or loss on the bond if its yield immediately changes to each value of yield to maturity. suppose bond b is currently priced to offer a yield to maturity of 8%. calculate the (percentage) capital gain or loss on the bond if its yield immediately changes to each value of yield to maturity. which bond’s price exhibits greater proportional sensitivity to changes in its yield? in other words, which bond has greater interest rate risk? which bond pays a high coupon rate has lower "average" or "effective" maturity than a bond that pays a low coupon rate?
