BVA Inc. has two bond issues outstanding, each with a par value of $1,000. Information about each is listed below. Suppose market interest rates rise 1 percentage point across the yield curve. What will be the change in price for each of the bonds? Does this tell us anything about the relationship between initial yield to maturity and interest rate risk?
Bond A: 12 years to maturity, pays a 7 percent coupon, and the market interest rate on this BB-rated bond is 12.36 percent.
Bond B: 12 years to maturity, pays a 7 percent coupon, and the market interest rate on this A-rated bond is 10.25 percent.