27. If the YTM of these bonds increased to 9%, which bond's price would be most sensitive to this change in YTM? Explanation: Although all four bonds have YTM of 8% p.a. and even though bonds #2 to #4 have coupons within 1% of their current YTM of 8%, their durations are not the same. Bond #4 has the longest maturity and therefore will have the highest change in price. You could also do the calculations and check that this is true. Use the following information to answer the question(s) below. Suppose you purchased a 20-year treasury bond with a 6% annual coupon ten years ago at par of 1,000. Today the bond's yield to maturity has risen to 8% (EAR). 28. If you hold this bond to maturity, the return you will earn on your investment will be: N = 20, PMT = 60, PV = 1000, FV = 1000, Compute IRR = 6.00% 29. If you sell this bond now, the rate of return you will earn on your investment will be: Step #1: Current Price is the PV with N = 10, PMT = 60, FV = 1000, r = 8%, P = 865.80 Step #2: Using P of 865.80 and N = 10, PMT = 60, Cost = -1000, Estimate of IRR = 4.93% Rate of return = 4.93%