| December 8, 2015

Bond A Bond B
Principal $1,000 Principal $1,000
Coupon 8% Coupon 7.6%
Maturity 10 years Maturity 10 years

Bond B has an additional feature: It may be redeemed at par after 5 years (i.e. it has a put feature). Both bonds were initially sold for their face amounts (i.e. $1,000).

If interest rates rise to 9%, what will be the decline in the price of each bond from the initial price?

Please show how you come up wth the answer.

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