Problem:

Compute the duration for bond C, and rank the bonds on the basis of their price volatility. The current rate of interest is 8 percent, so the prices of bonds A and B are $1,000 and $1,268 respectively.

Bond Coupon Term Duration

A. 8% 10 years 7.25

B. 12% 10 years 6.74

C. 8% 5 years?

Confirm your ranking by calculating the percentage change in the price of each bond when interest rates rise from 8 to 12 percent. (Bond A's and B's prices become $774 and $1,000 respectively.)

Please provide step by step solution.