Bond A and Bond B both have a face value of $1000, each carries a 5% coupon, and both are currently priced at par in the bond market. Bond A matures in 2 years and Bond B matures in 10 years. If the prevailing required rate of return in the bond market suddenly drops to 4.7% compounded semiannually, how much will the market price of each bond change? What general rules does this outcome demonstrate?

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The Answer of Bond A and Bond B both have a face value of $1000, each carries a 5% coupon, and both are currently priced at par in the bond market. Bond A matures in 2 years and Bond B matures in 10 years. If the prevailing required rate of return in the bond market suddenly drops to 4.7% compounded semiannually, how much will the market price of each bond change? What general rules does this outcome demonstrate?

Bond a and Bond B Both Have a Face Value