Bond J is a 3 percent coupon bond. Bond K is a 9 percent coupon bond. Both bonds have 15 years to maturity, make semiannual payments and have a yield to maturity of 6 percent.
(A) Calculate the prices of Bonds J and Bonds K. Are the bonds priced at a permium, at a discount or at par?
(B) If interest rates suddenely rise by 2%, calculate the prices of the bonds, and the percentage change in price of the two bonds.
(C) if instead the interest rates suddenly dropped by 2 percent, what are the prices of the two bonds and the percentage change in prices. (Dropped relative to the interest rates in part A)
(D) which of the two bonds has higher interest rate risk?