Question
An investor is considering investing into corporate bonds, long-term or short-term. Currently, the ongoing market rate is 10%. Use an example of a long-term bond
An investor is considering investing 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. You need to: a. Demonstrate your calculation to compare the price change of the two bonds due to interest rate changes. b. Discuss how interest rate change will impact the bond price and which bond, short-term or long-term will have a higher price risk
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