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5. Assume you want to invest some money in the bond market for one year. If you expect that the interest rates will decline, what
5. Assume you want to invest some money in the bond market for one year. If you expect that the interest rates will decline, what kind of bond that you would rather to invest, long-term bonds or short term bonds? Support your conclusion with numerical evidence. (Assume that all the 1-year, 2-years, 5-years, 10-years, and 20-years bonds have 10% coupon, annual coupon payment, for all of them current market price is 1000, and the interest rate will drop from 10% to 5%). Which type of bond has greater interest-rate risk?
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