Laurel Inc., and Hardy Corp. both have 8 percent coupon bonds outstanding, with semi-annual interest payments, and both priced at par value. The Laurel Inc., bond has 2 years to maturity, whereas the Hardy Corp. bond has 15 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? If interest rates were suddenly to fall by 2 percent, what would the percentage change of these bonds be then? What does this problem tell you about the interest rate risk of long-term bonds?
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