Problem:
Consider two bonds A and B. The coupon rates are 10 percent and the face values are $1,000 for both bonds. Both bonds have annual coupons. Bond A has 20 years to maturity while bond B has 10 years of maturity.
a. What are the prices of the two bonds if the relevant market interest rate for both bonds is 10 percent?
b. If the market interest rate increases to 12 percent, what will be the prices of the two bond?
c. If the market interest rate decreases to 8 percent, what will be the prices of the two bonds?