Consider the following three bonds. Coupon Rate Face Value Time to maturity

Consider the following three bonds.

Coupon Rate Face Value Time to maturity (in years) CouponPayments per year

Bond A. 0 $1000 t = 2 0

Bond B. 20% $1000 t = 2 1

Bond C 0 $1000 t = 3 0

For Bond B the first coupon is paid in exactly one year (at t = 1).

A. What are the current (t =0) prices of these bonds if the effective annual yield on all bonds in 5 percent?

Price of Bond A = ________________.

Price of Bond B = _______________.

Price of Bond C = ________________.

Please show work

B. If the yield curve shifts up to 6 percent (in the next nanosecond) what are the t = 0 prices of these three bonds.

Price of Bond A = _______________.

Price of Bond B = _______________.

Price of Bond C = ________________.

Please show work

C. Comparing Bond A and Bond B which of these two bonds has the larger percentage change in price given the shift in the yield curve?

Bond A Bond B

Please show work.

D. What can you conclude about the amount of price risk that exists for zero- versus non-zero coupon bonds with the same maturity date?

E. Comparing Bond A and Bond C which of these two bonds has the larger percentage change in price given the shift in the yield curve?

Bond A Bond C

F. What can you conclude about the amount of price risk that exists for longer-term versus shorter-term zero-coupon bonds?