rank the interest rate sensitivity of the following pairs of bonds.
(a.) bond A is an 8% coupon, 20 year maturity bond selling at par value.
bond b is an 8% coupon, 20 year maturity bond selling below par value.
(b.)Bond a is a 20 year non callable coupon bond with a coupon rate of 8%
bond b is a 20 year, callable bond with a coupon rate of 9%, also selling at par.
(a) bond b has a higher yield to maturity than bond a since its coupon pmts and maturity are equal to those of a, while its price is lower. Duration of B must be shorter.
(b) bond a has a lower yield and a lower coupon, both of which cause it to have a longer duration than that of bond b. moreover, bond a cannot be called. Therefore, the maturity of bond a is at least as long as bond b.