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Bond a coupon rate of 10%makes annual coupon payment, and has par value of $1000. Bond B has a coupon rate of 8%, makes annual coupon payment, and has par value of $1,000. Both bonds have 5 years to maturity and an annual mM of 10%. a. calculate prices of bond Bat tro and bond A (after coupon payment) at t 1 b. After one year, the annual YTM of bond A increases to 12%. What is the new price of bond A (after coupon payment at t You buy the bond at tao. After change in interest rate, you sell at t-1 immediately after first coupon payment. What total annual return did you realize over the first year? is your return higher or lower than the initial YTM? Why? (Explain the reason in one sentence.) RSuppose the annual YTM of bond B increases to 1296 as well after one year. Which bond price is affected more by the same change in interest rate and what is the intuition (reason)? (Hint: You dont have to do any calculations for this question. But if you dont know the answer, showing your calculations without the intuition (reason) gives you partial credits (0.5 pt))
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