Problem: You are given two bonds (Bond A & Bond B) which have different payment schedule. Based on the following information, you wish to figure out which bond has a greater interest rate risk. (You need to calculate duration and volatility of bonds)
Bond A: 2 year discounted bond with face value of $1000.
Bond B: 2 year coupon bond (annual coupon rate = 5%) with face value of $1,000
Assume 6% of appropriate discount rate (Annual yield).