Bond Coupon rate (annual payments) Maturity (years)
A 0% 15
B 0% 10
C 4% 15
D 8% 10

1. Compute the percentage change in the price of each bond if its yield to maturity falls from 6% to 5%. 2. Based on your answer in part 1, (i) Assess the bond that is most sensitive to a 1% drop in interest rates from 6% to 5%.
2. Based on your answer in part 1, (i) Assess the bond that is most sensitive to a 1% drop in interest rates from 6% to 5%(ii) Assess the bond that is least sensitive to a 1% drop in interest rates from 6% to 5%.
3. Based on your answer in part 2, critically evaluate the rationale behind for selecting such bond. Provide an intuitive explanation for your answer