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An investor is considering into corporate bonds, long-term or short term. Currently the ongoing market rate is 10%.Use an example of a long-term bond(10-yr) with
An investor is considering into corporate bonds, long-term or short term. Currently the ongoing market rate is 10%.Use an example of a long-term bond(10-yr) with a short-term bond(1-yr) to help the investor understand how interest fluctuation will impact the value of bonds of different maturities. Assume both bonds have $1000 par and $100 annual coupon payment.
A. Compare the price change of the two bonds due to interest rate changes.
B. How does the interest change impact the bond price and which will have a higher risk?
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