Attempts: 3. Problems and Applications Q3 Bond A pays $12,000 in 14 years. Bond B pays $12,000 in 28 years. (To keep things simple, assume these are zero-coupon bonds, which means the Average: /4 $12,000 is the only payment the bondholder receives.) Suppose the interest rate is 5 percent. Using the rule of 70, the value of Bond A is approximately , and the value of Bond B is approximately Now suppose the interest rate increases to 10 percent. Using the rule of 70, the value of Bond A is now approximately , and the value of Bond B is approximately Comparing each bond's value at 5 percent versus 10 percent, Bond A's value decreases by a percentage than Bond B's value The value of a bond when the interest rate increases, and bonds with a longer time to maturity are sensitive to changes in the interest rate