Consider two bonds, a 3-year bond paying an annual coupon of 6.90% and a 10-year bond also with an annual coupon of 6.90%. Both currently sell at a face value of $1,000. Now suppose interest rates rise to 12%.
Required:
a. What is the new price of the 3-year bonds?
b. What is the new price of the 10-year bonds?
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