Question
Assume that you own a 2-year, 10-year and 30-year bond (years to maturity) and all of the same quality. All have the same coupon rate
Assume that you own a 2-year, 10-year and 30-year bond (years to maturity) and all of the same quality. All have the same coupon rate = 7%. The only difference in the bonds is in the years to maturity. Further assume that required YTM on all of these bonds increases by 2 percent and that you observe the following changes in prices on these bonds: -3.6% -20.6% -13.0% Without using a calculator, which bond's price changed by -20.6%? D. none of the above because prices should have risen and not fallen. A. 2-year bond C. 30-year bond B. 10-year bond
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