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Consider two bonds, both with 8% coupon rates (assume annualcoupon payments) one with 10 years to maturity and the other with20 years to maturity. Assume that current market rates of interestare 8%. Calculate the difference in the change of the price of thetwo bonds if interest rates decrease to 6% one year afterpurchasing the bond. Repeat the procedure assuming that interestrates increase to 10% one year after purchase. Explain the majorbond pricing principle that is being illustrated here
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