Question
Bond A (Short Term) Bond B (Long Term) Coupon Rate 10% 10% Interest Paid Annually Annually Face Value $1,000 $1,000 Maturity 1 year from today
Bond A (Short Term)
Bond B (Long Term)
Coupon Rate
10%
10%
Interest Paid
Annually
Annually
Face Value
$1,000
$1,000
Maturity
1 year from today
15 years from today
1.What would be the value in dollars of each of these bonds when the required interest rate (yield to maturity) is 10 percent?
2.What would be the value in dollars of each of these bonds when the required interest rate (yield to maturity) is 5 percent?
3.What would be the value in dollars of each of these bonds when the required interest rate (yield to maturity) is 15 percent?
4.Based on your answers above, what is true about the direction and magnitude of the change in bond prices relative to a change in interest rates?
2.What would be the value in dollars of each of these bonds when the required interest rate (yield to maturity) is 5 percent?
3.What would be the value in dollars of each of these bonds when the required interest rate (yield to maturity) is 15 percent?
4.Based on your answers above, what is true about the direction and magnitude of the change in bond prices relative to a change in interest rates?
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Financial Markets and Institutions
Authors: Frederic S. Mishkin, Stanley G. Eakins
8th edition
013342362X, 978-0133423624
