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5. Long term bonds are generally riskier than short term bonds even when both bonds were issued by the same source and thus, presumably, have

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5. Long term bonds are generally riskier than short term bonds even when both bonds were issued by the same source and thus, presumably, have almost the same default risk. Consider two bonds that are identical in every way except their maturity and prices: Bond Face value coupon rate P T (maturity) Short term $1000 0% $961.17 2 years Long term $1000 0% $552.08 30 yea rs These bonds pay no coupons so it is easy to calculate the yield using the price and vice versa. You can verify that they both yield 2%. If the yield falls to 1% the short term bond's price rises by about 4% while the long term bond price rises by %

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