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3.a) What is the price of each of the following bonds ($1,000 principal) if the current...

3.a) What is the price of each of the following bonds ($1,000 principal) if the current interest rate is 8 percent?

Firm A: coupon 5%, Maturity 7 years

Firm B: coupon 5%, Maturity 14 years

Firm C: coupon 12%, Maturity 7 years

Firm D: coupon 12%, Maturity 14 years

b) What is the duration of each bond?

c) Rank the bonds in terms of price fluctuations with the least volatile bond first and the most volatile bond last as judged by each bond’s duration

d) Confirm your volatility ranking by determining the percentage change in the price of each bond if interest rates rise up to 11%.

e) What generalizations can be made from the above exercise

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